Americans are missing out on HSA savings

New data show most account holders aren’t maximizing the tax advantages of health savings accounts.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Health savings accounts offer many advantages, letting you save money for health expenses tax-free, spend money on health expenses tax-free, and grow the savings by investing it — also tax-free. But new data from the Employee Benefit Research Institute shows most account holders don’t take full advantage of these tax benefits.

The EBRI study was based on a database of 13.1 million HSAs with total assets worth $39.5 billion as of Dec. 31, 2021.

Key findings

  • Contributions below the maximum: The average contribution to an HSA in 2021 was $2,673, which includes employee and employer contributions. This is a drop from 2020 and significantly less than the maximum contribution for individuals ($3,600) and families ($7,200).

  • Relatively low balances: The average end-of-year balance was $4,318, though accounts open for 10 years ended the year with an average balance of $13,482.

  • Low use of investments: Only 12% of HSA accounts contained investments other than cash, meaning many account holders are missing out on ways to grow their money tax-free. 

Why don’t HSA holders use their accounts to the fullest?

Dr. Jeff Kullgren, an associate professor of internal medicine at the University of Michigan Medical School, and his colleagues have surveyed HSA holders about how they use these accounts, and found that the top reasons they don’t save more are: 

  1. They don’t anticipate needing health care in the future

  2. They think they have enough savings to cover health care costs

  3. They don’t think they need to save for health care

  4. They can’t afford to save for health care

Kullgren, who is also a research scientist for the Veterans Affairs Ann Arbor Healthcare System, says people often underestimate their future health care needs.

“We’re often not great at projecting what health care any of us are going to need over the coming year,” he says.

And while the benefits of HSAs may be top of mind when you’re signing up for benefits during your workplace’s open enrollment period, it can be easy to forget about them during the rest of the year, especially if employers don’t educate employees on how to use them. This is a missed opportunity, Kullgren says, since people rely on health care beyond open enrollment.

What is an HSA?

An HSA, or health savings account, is a special kind of personal savings account that lets you set aside money money (pre-tax) to pay for future medical costs. You can also invest the money, and any gains are tax-free. Only high-deductible health insurance plans are eligible for HSAs.

Only people with high-deductible health plans qualify for HSAs. Today, more than half of enrollees in private health plans have a plan with a deductible large enough to qualify for an HSA, according to the EBRI study. One survey of HSA providers estimates that the HSAs held $98 billion in assets spread out over 32 million accounts at the end of 2021, a growth of 19% year-over-year in assets and 8% in accounts. [1]  

While high deductibles are a drawback, many people, and employers, opt for these plans because they have lower premiums. The average deductible amount for workers with employer-provided single coverage health insurance has increased 61% over the last 10 years. [2]  

How to take advantage of HSAs

For many people, simply learning how to use an HSA may be the first step.

“It is time well spent to really dig into understanding how it works,” Kullgren says. “Because it’s so complicated, there are many people for whom this is difficult to navigate, but there are resources out there that can help with those decisions.”

One place you can turn to is company’s human resources department. They may have tools or educational resources that can walk through how your HSA works. Your doctors and other medical providers may be able to help you estimate your future health care needs.

The HSA provider and your health insurance company can also help guide you through how to save, spend, and invest the money in an HSA. You may want to talk to a professional financial advisor about how much to save and specific investments to choose. If you don’t spend them down, the funds in an HSA can be an additional source of retirement savings.

Companies and policymakers can do more to encourage people to save as well, Kullgren says. “Nudges” that have worked to increase retirement savings like linking savings rates with raises could also work for HSAs.

“Especially as the cost of everything continues to grow,” Kullgren says, “these are decisions that can be in people’s financial best interest to really think through carefully.”

Image: Drazen Zigic / Getty