Many Generation Z employees with access to a health savings account are not using them to their full potential or are not contributing to them at all, according to new data from Inspira Financial.

While young professionals tend to champion mental health and investing in their physical and emotional well-being, Inspira found that nearly one-third of employees younger than 30 contribute nothing to their HSA annually (a higher figure than any other generation), and only 14% contribute more than $3,000 per year (a lower percentage than any other generation).  

Inspira’s report analyzed 700,732 Inspira HSA holders from January 2023 through September 2023. 

Bryan Levy, Inspira’s managing director of consumer-directed business, says one factor contributing to this lack of HSA participation is that Gen Z employees are early in their careers, therefore tend to make less money than their older colleagues and may feel unable to afford contributing to an HSA. 

Additionally, Levy says those in Gen Z are dealing with higher medical bills relative to their peers, as well as expensive car payments, student loan repayments and perhaps even mortgage payments if they have purchased a home.  

“The convergence of lower income relative to peers plus higher [medical] costs relative to their peers leads to a squeezing of the water balloon, [and] there’s just less money to go around,” Levy says.  

These high medical costs also come at a time when young people are experiencing “unprecedented levels of anxiety, depression and overall distress,” according to research by McKinsey & Co., which also stated that Gen Z employees are less proactive overall in seeking care than other generations. McKinsey attributed this behavior to “developmental stage, disengagement from their health care, perceived affordability and stigma associated with mental or substance abuse disorders within their families and communities.” 

A recent study by PYMNTS and Experian also found that Gen Z patients were the least aware that they would be required to make an out-of-pocket payment at their most recent medical appointment, with 32% not knowing they would need to make co-payments. 

Levy adds that he finds it surprising that Inspira’s study revealed a high percentage of Gen Z employees dealing with chronic conditions—often behavioral health conditions—despite the popular assumption that people aged 22 to 30 are “invincible.” 

“Employers and institutions might be able to reduce future health care costs by tending to the behavioral health and physical health needs when someone is ‘invincible,’” Levy says. “By ensuring that people have reduced barriers to care, through high deductible health plans with an HSA … [an employee’s] costs when they’re older might be more controlled and affordable.” 

According to Inspira’s report, longer savings horizons allow key benefits of HSAs to shine, such as the triple tax advantage of these accounts (contributions go in tax-free, the money grows tax-free and it can be withdrawn tax-free).  

The report also identified that education on the benefits of prioritizing savings contributions could help the youngest cohort of employees better plan for all their financial obligations. For example, if an employee’s 401(k) plan sponsor will match 50% of the first 6% of contributions and an employee plans to contribute 7%, Levy recommends allocating the extra 1% into an HSA, if one is available.  

“If you put that extra percent in the HSA, it actually may be a better long-term strategy because of the tax-advantaged nature of an HSA,” Levy says. “Some of the things that we’re talking about with employers is how to help Gen Z, Gen X and even [Baby] Boomers [understand] what to do with your next best dollar, because making the right decision there could be the difference between paying a penalty for taking out a 401(k) loan or paying full price for health care versus a tax-reduced cost for health care.” 

Besides the financial benefits of an HSA, the report noted that HSAs also move with employees if they change jobs, which could appeal to young professionals as they are more likely to switch jobs more frequently in the beginning of their careers. 

The report also highlighted the importance of helping employees seek preventative care to reduce unnecessary stress on the health care system going forward, as delaying care can not only exacerbate conditions that could have been treated earlier, but delayed treatment is significantly more expensive.  

According to the International Foundation of Employee Benefit Plans, medical plan costs will rise an estimated median of 7% in 2024, due to factors such as inflation and delayed routine care.