HSA Account Holders Missing Out on Investment Returns

Owners of health savings accounts (HSAs) are primarily using them for immediate needs, such as deductibles, coinsurance and copayments, according to the Employee Benefit Research Institute (EBRI). Thus, they are using HSAs more like checking accounts than investment vehicles, EBRI says.

With 96% of HSA holders investing their money in cash, HSA owners are grossly missing out on the tax benefits of any interest or capital earnings on assets in the accounts building up tax free, EBRI says.

Average total contributions in 2016, from both individuals and employers, were $2,922, just above the minimum allowable deductible amount for family coverage but less than one half of the allowable contribution maximum for family coverage. Sixty-three percent of account holders withdrew funds, and those withdrawals averaged $1,771.

The rollover feature of HSAs enables account holders to build up a balance for unexpected major medical expenses—in the near future and/or for retirement. Accounts opened in 2004 or earlier had an average 2016 year-end balance of $14,873, while those opened in 2016 had a year-end balance of $1,027. In addition, annual 2016 contributions are higher the longer an account owner had an account. Among those who opened their account in 2005, average contributions in 2016 were $3,658, but among those who opened their account in 2016, contributions averaged $1,290.

The EBRI report notes that over time, HSA owners appear to see the value in investing. In 2016, 11% of accounts opened in 2005 had investments other than cash, compared to only 1% among those opened in 2016.

The full report may be downloaded from here.