HSAs Gain Popularity, but Few Users Invest Assets, and Education Remains Big Concern

Participant contributions to and the overall balances of health savings accounts are on the rise, according to the Plan Sponsor Council of America’s recently published 2023 HSA Survey.

At the same time, however, plan sponsors are increasingly concerned about their employees’ ability to fund their HSAs, and they report struggling to educate employees about these accounts.

The HSA Survey, sponsored by HSA Bank, sought responses from 529 organizations that offer an HSA program to employees, up from 464 companies surveyed last year.

The PSCA’s research found that nearly 70% of employers offer multiple health plan options in addition to the HSA-qualifying option, with large organizations twice as likely to offer multiple health plans to employees. But for those that offer multiple options, 37.3% of employers stated that more employees choose the HSA-qualifying health option, whereas 44.4% responded that more employees choose other options (11.8% reported roughly equal take-up rates, and 6.6% said they were unsure which was greater).

The average participant contribution in 2022 was $2,323, lower than in the last few years. The average account balance, at the end of 2022, however, was $6,130, up from $4,237 in 2020.

When offered the opportunity, nearly 60% of eligible employees enrolled in the HSA-qualifying health option. Of those that enrolled, 80.1% made contributions to their account, PSCA found.

More than one-third of employers also reported that less than 25% of employees spent their entire HSA balance in 2022, but 60% of organizations surveyed did not have access to that data. Additionally, only a small percentage of employees contributed the maximum allowed.

Few Invest HSA Assets

Even though 60% of organizations offer investment options for HSA contributions, most participants do not use this option, according to the report.

Fewer than 20% of participants invested assets when given the option, and nearly 70% of all HSA assets remain in cash. Investment of HSA assets was also found to be used more by participants at small organizations than at large organizations.

The average percentage of participants who invested assets actually dropped to 18.7% in 2022 from 21.5% in 2021.

A vast majority of plan sponsors (92%) also stated that they do not try to mirror the HSA investment lineup with their 401(k) lineup and that doing so is not a goal. In terms of the types of investment options provided, 91% provide mutual funds, and half also reported they provide brokerage accounts.

Educating Participants

Most employers surveyed (60%) said they primarily educate employees about HSAs during open enrollment, though one-third said they also provide education throughout the year.

The dominant topic on which employers focus education efforts is teaching participants about the tax benefits of HSAs, as contributions can go into the account tax-free, grow tax-free and can be withdrawn tax-free. Employers also reported a focus on educating participants about contribution limits and the overall HSA-eligible health care plan.

For 2024, the maximum HSA contribution will be $4,150 for an individual and $8,300 for a family, the Internal Revenue Service announced in May.

The House Committee on Ways and Means recently approved legislation intended to raise contribution limits in order to make out-of-pocket health care expenses more affordable. The HSA Modernization Act, backed by Representative Beth Van Duyne, R-Texas, proposes increasing the HSA contribution limit to equal the sum of the annual deductible and out-of-pocket limitation permitted under a high deductible health plan.

In addition, 11% of organizations said they use or suggest a default savings rate to employees for their HSA, and only 6% of organizations offer additional education to employees who do not contribute to the HSA or only contribute a nominal amount.

More than one-third of employers indicated they position the HSA to employees as part of a retirement savings strategy, up from 27.2% the year before.

Although nearly 58.3% of employers indicated that employee education is a top concern, that is down from 69.7% last year. Concern about employees being able to fund their HSAs appears to be slowing employer advocacy, as well as the difficulty of administering the accounts.

With open enrollment season beginning for many employers, HSAs will be widely considered in November, especially as the cost of health care in retirement continues to increase.