Mega-Trends Have Emerged That Drive Growth in HSAs

Mega-trends are driving the growth of health savings accounts.

An Employee Benefit Research Institute webinar, “The Three Certainties of Life: Death, Taxes and Updates From The EBRI Health Savings Account Database,” examined several trends that are prompting the marketplace to continue to grow.

EBRI’s health saving account database comprises 11.4 million HSAs, with assets totaling more than $32.9 billion, as of year-end 2020. In the last five years, the number of HSA accounts has grown more than 60% and the number of assets has grown by 250%, said Chris Byrd, executive vice president for healthcare operations at WEX, a fintech firm. “These accounts continue to grow very rapidly,” he said.

HSAs’ rapid growth since 2003, when HSAs were created, has been driven by employees wanting to cover rising health care costs in retirement. In addition, more employers have moved to high-deductible health plans that are paired with an HSA.

According to data from the Kaiser Family Foundation, 85% of people who are enrolled in an employer health plan have a general annual deductible, and the average deductible for single coverage in those plans is almost $1,700. “The context here is important: out of pocket exposure continues to rise,” Byrd said.

Plan sponsors offering an HSA have recognized that participants must save for medical expenses, which has provided fuel for trends, said William Giaconia, executive vice president for healthcare operations at Fidelity investments.

A trio of trends is driving growth, said Giaconia. First, account holders are investing their assets rather than keeping them in cash; second, plan sponsors are focusing more on employees’ financial wellness; third, there is an attendant accelerated trend in offering digital health resources and tools. “Our clients are viewing these products as not just products that employees can use to help pay for current health care expenses, but to save for future health care and other expenses in their retirement,” he said.

Fidelity reached an HSA milestone this year, as 50% of HSA assets were invested compared to 25% three years ago, he added. “We’re seeing that steady climb in invested accounts and assets,” Giaconia said.

EBRI’s database shows that in 2020, 9% of accounts held investments other than cash, compared to 7% in 2019.

The average balance for accounts with invested assets is $22,496, compared to $2,296 for accounts with no invested assets. “This as an indication that investors are using their HSA as more of a savings vehicle rather than spending vehicle,” said Jake Spiegel, research associate, health and wealth, at EBRI.

Invested accounts also have higher average contributions, higher net contributions, and “investors see their HSAs grow at a much faster pace than account holders who do not invest,” Spiegel added.

HSAs are also a way to help workers protect their retirement savings. “I don’t think it’s a surprise to anyone that about 30% or so, in our block of retirement business hardship withdrawals from retirement accounts, are for health care expense,” Giaconia said. But when plan sponsors offer both an HSA and a retirement plan, the figure is nearly cut in half, he added. “Even modest balances can really help to insulate that consumer from having to make a financial hardship withdrawal or to have a general financial hardship related to health care expenses, Giaconia said.