Given that there is little information on how health savings
account (HSA) participants make use of these savings vehicles, HelloWallet
studied more than 400,000 accounts held by UMB Bank, one of the largest HSA
recordkeepers in the U.S., and found these plans are grossly
Over the past 30 years, U.S. employees’ health care costs have risen more than 50% and employers’ costs have more than tripled, prompting many employers to adopt high-deductible health plans (HDHP) along with HSAs to enable participants to save for the high deductibles, HelloWallet says in its new report, “Health Savings: The Consumer Finance of Health Savings Accounts.” Citing a 2014 survey by TowersWatson, HelloWallet notes that 82% of large employers planned to offer some form of a HDHP in 2015, up from 73% in 2014 and a mere 21% a decade ago.
Analysis of the UMB Bank data from 2013 found that 42% of HSA account holders save their annual contributions throughout a 12-month period, and 30% spend nearly all of their contributions. The remaining account holders spend or save in relatively equal proportions. Only 4% of account holders eligible to invest their balances actually invest the money. On average, older and higher-income employees contribute more than 200% more than younger and lower-income employees. Company matches also prompt more engagement; the median account holder with an employer contribution defers more than 200% more into an HSA than the median account holder without an employer contribution.
HelloWallet also found that savings rates in HSAs are very
low. While the maximum HSA contribution amount that the Internal Revenue
Service allowed in 2013 was $3,250 for single coverage and $6,500 for family
coverage, the mean deferral was $1,591 and the median deferral was just $700. A
mere 5% of account holders contributed the statutory maximum.
This could put their retirement savings at risk, HelloWallet says: “If employees do not contribute to their HSAs, they will miss valuable tax savings, or worse, may lack sufficient savings in liquid accounts to afford their deductible or out-of-pocket maximums related to major medical emergencies. They may instead choose to forgo or postpone necessary care—or they may choose to finance their health care with credit cards, payday loans or by breaching their 401(k) accounts.”
HelloWallet concludes that employer matches are an important element of HSA plan design and that HSA sponsors should encourage participants to invest their funds rather than sitting in a checking account only to be eaten away by inflation, as well as to increase their savings rates.
UMB Healthcare Services recently issued a report in which it
projected that a 40-year-old employee earning $80,000 who starts to maximize
his HSA contributions and earns a 5% return will have more than $306,000 by age
65, so the potential for HSAs to amass sizeable amounts of money is real and
more employees can be made aware of their potential.
The HelloWallet report can be uploaded here.