In the face of rising health care expenditures and out-of-pocket spending, average health savings account balances have also steadily increased since the COVID-19 pandemic, according to new data from the Employee Benefit Research Institute.

The average HSA balance rose to $4,418 at the end of 2022 from $2,711 at the start of the year, the most recent data available in EBRI’s database, given that participants can still contribute to 2023 HSAs until taxes are due in April.

Jake Spiegel, a research associate at EBRI, says he sees this trend continuing in 2023 and into the start of 2024 as well.

EBRI’s analysis revealed two predominant factors associated with higher average account balances. The first was that age is strongly associated with higher HSA balances: the older the accountholder, the higher the average balance.

“When you’re young, you tend to have less disposable income, so you’re able to spend less to begin with [compared with] somebody who’s been established in [their] career for a few years,” Spiegel explains.

Older workers also tend to incur more health care expenses than younger workers, hence the need, and willingness, to contribute more to their HSAs.

In addition, EBRI found that account tenure is strongly associated with higher balances. The longer someone has had their account, the more contributions he and his employer are likely to have made.

Most accountholders in EBRI’s database—which analyzes more than 14 million HSAs—took a distribution in 2022, with an average withdrawal of $1,868. However, relatively few accountholders spent down their entire accounts, suggesting that many participants are aware of, and reaping, the tax advantages—tax-free contributions, tax-free growth and tax-free withdrawal for health care costs—that HSAs offer.

The report explained that workers view HSAs through different lenses, as some view the accounts as a short-term spending account to be used when out-of-pocket costs crop up, whereas others view them as longer-term savings vehicles.

“The financial wellness gurus [often] say, ‘contribute as much as you can and never take distributions and don’t touch that money until retirement,’” Spiegel says. “But the fact of the matter is: That advice is not appropriate for everybody.”

Spiegel argues that it is not necessarily a “bad thing” that employees are using their HSAs as short-term spending vehicles, because the accounts are still helping people stretch their health care dollars further than they otherwise could.  

EBRI also found that accountholders who received an employer contribution to their HSA were more likely to have taken a distribution than accountholders who did not receive an employer contribution, and they took larger distributions on average. This is likely because those who receive employer contributions may feel more comfortable taking larger distributions, knowing that their employer’s contribution added to their account balances.

Spiegel adds that employees who do not receive an employer contribution tend to contribute more themselves, whereas those who do receive an employer contribution tend to contribute less. However, the employer contribution makes up for the lower employee contribution and ultimately results in a higher account balance.

He says accountholders with higher balances are also more likely to invest their HSAs.

In general, EBRI found that relatively few HSAs are invested, as only 13% of accountholders invested their HSAs in assets other than cash. Spiegel says it is not wise for employees to invest their HSA balances in risky asset classes, especially if they expect to use the funds in the shorter term.

However, the report stated that if accountholders have a large enough buffer in liquid accounts to weather a larger, unexpected health care expense, then they may be better off at retirement by investing some portion of their HSAs.

EBRI concluded that providing an employer contribution to an HSA, or even allowing for them to be invested, will not automatically cause an investor to treat his HSA as a long-term savings vehicle, but plan sponsors and administrators do play a “critical role” in helping accountholders understand the long-term tax advantages and financial wellness benefits of contributing to an HSA.