Health savings accounts take a hit from pandemic, unemployment

Health savings accounts (HSAs) have taken a heavy hit from the pandemic, unemployment and the worry caused by both. Investing fell sharply for the 80 percent of account holders who do not already heavily invest in their HSA funds, according to the second annual HSA Account Holder Insight report from Lively.

“We knew that Americans were withdrawing funds from their IRAs and 401(k)s due to the pandemic,” said Shobin Uralil, COO and cofounder of Lively. “But this sharp decline in HSA investing shows just how much COVID-19 has threatened the confidence of the millions of people currently saving for retirement. People need more personalized and consumer-friendly tools in their hands to help them get back on track and prepare for future health events.”

Among other key findings:

The majority of HSA account holders are using their accounts to focus on yearly and expected tax-advantaged health-care spending. Account holders are spending nearly as fast as they contribute. They take about $1,700 in distributions annually, leaving them an average account balance of just over $1,000 in assets.

The most investment-savvy HSA account holders are focused on maximizing their HSAs for retirement. At an average age of 59, these people had a balance of more than $36,000, with 96 percent of those assets invested. This account balance grew 11 percent, up from $33,000 in 2020, because of strong performance in investment markets.

Cash balances remained flat from 2020, but average spend increased for some groups and decreased for others. Cash balances remained at similar levels from last year, but average distributions increased for people who actively are using their HSA as a vehicle for health spending and decreased for those who are more focused on retirement savings.

Debit card spending fell slightly in 2021. Overall, although visits to primary care doctors have nearly returned to pre-pandemic levels, Americans still are putting off visits to specialists. However, HSA users are spending on non-doctor’s office expenses.

Families have higher HSA cash balances and use HSA investments more than individuals. Families have an average HSA balance of about $7,500 compared to $4,300 for individuals. For those who invest, families have an average investment balance of about $12,000, compared to just below $7,000 for individuals. Thirty-three percent of families are investors, compared to 27 percent of individuals.

Individual accounts had higher balances than employer-sponsored accounts. Individuals had an average account balance of $6,543, compared to $3,356 for employer-sponsored accounts.