Health Savings Account balances on the rise

Health Savings Accounts (HSA) have become a common employee benefit that can help accountholders stretch money for health care expenses further than they otherwise could.

The Employee Benefits Research Institute examined trends in HSA balances and how the funds were used between 2011 and 2021. The tax benefits of HSAs are maximized when accountholders contribute the statutory maximum and minimize withdrawals for current medical expenditures — if they are able — and invest their HSA balances in assets other than cash, according to EBRI.

But the majority of accountholders are instead using their HSAs to pay for current expenses and miss out on many of the tax benefits. According to the study, average contributions are well below the statutory maximum, most accountholders take a distribution from their HSA, and relatively few accountholders invest.

Despite not achieving the maximum benefits, there are positive trends within HSAs. The average balance in HSAs increased since 2020, rising from $3,622 to $4,318 in 2021, and the share of accountholders who invest their HSAs has crept steadily upward since EBRI began analyzing its HSA Database.

Here are the other key findings from the study:

Relatively low balances

Since the establishment of EBRI’s HSA Database, average account balances have generally trended upward. End-of-year balances increased in 2021, but overall, average balances are still modest.

Contributions below the maximum

Both the average employee and employer contributions decreased relative to 2020. The average combined HSA contribution in 2021 was $927 less than the statutory maximum contribution for individuals and $4,527 less than the statutory maximum contribution for accountholders with family coverage.

High incidence of withdrawals

Overall, just over half of accountholders withdrew funds. The average distribution increased slightly relative to 2020, when fewer patients sought health care services on account of the COVID-19 pandemic.

Low use of investments

Few accountholders took advantage of the ability to invest HSA funds, as only 12% of accountholders invested in assets other than cash. However, the share of accountholders who invested their HSAs has increased five years in a row and saw its largest year-over-year increase in 2021.

According to the report, on average, accountholders appear to be using HSAs as specialized checking accounts rather than investment accounts, though this behavior appears to change the longer an HSA owner holds an account. Over the past decade, EBRI has found evidence that the longer an accountholder has had their HSA, the higher the likelihood that the accountholder invests their HSA in assets other than cash, in addition to contributing more on average and enjoying higher account balances.