Few participants use HSAs as investment vehicles

Most health savings account (HSA) owners use the account as a specialized checking account, rather than investment vehicles, according to recent research from the Employee Benefit Research Institute (EBRI). The survey found that average total contributions (combined individual and employer contributions) increased from $2,348 to only $2,922 between 2011 and 2106. This average was just above the minimum allowable deductible amount for family coverage, but less than one-half the allowable contribution maximum for family coverage.
Overall, 63 percent of HSA account holders withdrew funds. The average annual amount distributed was $1,771 in 2016, implying an average rollover of $1,151. Very few account owners invested their HSA balance in investments other than cash despite the tax saving possibilities. In 2016, 4 percent had investments other than cash.
“HSAs offer a valuable tax incentive to set aside money on a tax-favored basis for current or future medical expenses,” said Paul Fronstin, director of EBRI’s Health Research and Education Program. “However, most account holders appear to be using the accounts to cover current expenses, such as deductibles, coinsurance and copayments, rather than fully taking advantage of the tax preference by contributing the maximum.”


EBRI found that longer experience with an HSA improves account holder prospects for financial security. 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 $14,873 year-end account balance, while accounts opened in 2016 had an average $1,027 year-end account balance.
EBRI also noted that annual 2016 contributions were higher the longer an account owner had an account. Individual contributions averaged $3,658 among those who opened their account in 2005, but only averaged $1,290 among those who opened their account in 2016. And, older, larger accounts offer a stronger hedge against unexpected bills. Those accounts opened in 2005 had an average annual distribution of $2,756, while those only opened in 2016 took $1,051 in distributions.


The report notes that over time, HSA owners appear to see the value in investing. In 2016, 11 percent of accounts opened in 2005 had investments other than cash, compared to only 1 percent among those opened in 2016. It is possible that rules requiring minimum balances may have prevented owners of relatively new accounts from investing as the accounts would not have reached the minimum balance requirement.
The EBRI survey is based off data from the EBRI HSA Database, which includes administrative data on 5.5 million accounts with $11.4 billion in assets, and examines account balances, individual and employer contributions, distributions, investments and account-owner demographics from 2011 through 2016.

SOURCE: www.ebri.org
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