Here’s How Employees Are (Mis)Using HSAs

05 Nov 2018 10:05 AM | Bill Brewer (Administrator)

EBRI report highlights 2017 trends in contributions, distributions

by Jessa Claeys 

November 1, 2018 

in Research/ToolsYour 401k News


The popularity of HSAs is exploding—which is great—yet most employees aren’t using them as retirement savings vehicles—which is… unfortunate.

It’s a trend highlighted in the latest report from the Employee Benefits Research Institute (EBRI).

According to “Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2017: Statistics from the EBRI HSA Database,” most Americans with HSAs aren’t investing their funds, maxing out contributions or otherwise using it to save for future medical expenses.

Instead, over three-quarters who contributed to such an account in 2017 also withdrew at least some of the money.

One would think in the time since 2004, when the HSA concept first launched, employees would have gained a better understanding of its intended purpose. But that doesn’t appear to be the case.

Part of the problem could be that many HSA enrollees are fairly new to the game. In fact, 2017 data showed 77 percent of existing accounts were less than three years old.

In spite of largely ignoring its intended use as a long-term savings vehicle, average HSA balances continue to grow year-over-year. Overall, “two-thirds of account holders ended 2017 with positive net contributions,” EBRI noted in its report. “The average HSA balance among account holders with individual or employer contributions in 2017 was $2,764, up from $1,873 at the beginning of the year.”

Still, few employees are maxing out their accounts or investing their assets. A mere 13 percent contributed the fully allowable annual amount last year. Even fewer invested beyond cash—just 4 percent.

Those who did invest ended the year with higher account balances. However, they were also far more likely to take distributions (69 percent versus 31 percent). And when distributions were taken, investors tended to withdraw larger amounts on average than non-investors ($2,293 compared to $1,696).

“Plan sponsors and administrators will need to support and educate account holders about tactics for self-funding uninsured medical expenses, including the benefits of moving beyond cash when investing HSA assets and explaining how contributing closer to the maximum allowed by law will increase the likelihood of being able to cover uninsured medical expenses in the future,” said Paul Fronstin, Ph.D., director of the Health Research and Education Program at EBRI and author of the study.

“With health care costs comprising such a large percentage of retirement expenses, the HSA should be viewed as an important retirement savings vehicle.”

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Source: 401(k) Specialist magazine

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