Investing With HSAs

Most Americans know that medical care is expensive; 80% of respondents to a recent RBC Wealth Management survey reported being worried about how they will finance those costs in retirement.

If used successfully, health savings accounts (HSAs) can help assuage some of those concerns. Besides their triple tax advantages—contributions, profits on investments, and withdrawals used for qualified medical expenses are all tax free—HSAs enable other benefits, says Roy Ramthun, founder and president of HSA Consulting Services LLC. “Lower premiums help fund HSAs; in general, a high-deductible health plan [HDHP—required to offer HSAs—]tends to bring your premiums down, and that money is then available to help you fund your HSA,” he says.

Still, there is room to grow in providing access to the accounts: Only 45% of employers responding to the 2020 PLANSPONSOR Defined Contribution (DC) Survey have an HSA option.

Expansion of adoption will require more than adding an HDHP to the open enrollment menu—it also means watching participant enrollment. About 50% of employers saw just 50% adoption of HDHPs when these were offered as a health plan choice, according to the PLANSPONSOR DC Survey.

Of the employers that offer HDHPs, about 50% default employees into an HSA, the DC Survey also found. The remaining employees may or may not initiate opening an account. Plan advisers, who are used to talking about engagement and enrollment with plan sponsors, might help clients consider targeting HSA enrollment.

Then participants must invest those assets if they want to maximize them for retirement. The 2021 PLANSPONSOR HSA Survey found that roughly 7% of HSAs leverage investment options, with the average balance being $11,740—a start, with lots of runway.