HSA balances, contributions grew despite higher health spending

Despite increased health care spending in 2021, Health Savings Account (HSA) enrollees ended the year with higher balances in their accounts, according to a new study from the Employee Benefit Research Institute (EBRI). The analysis outlines some interesting findings about HSA accounts in the year after the worst of the COVID pandemic. For the report, researchers looked at data from more than 13 million HSA accounts in the U.S.

EBRI officials said the findings were unexpected given the rebound in utilization of health care services in 2021. During the pandemic of 2020, health care spending decreased significantly, as people dropped doctor office visits and preventive care, sometimes because clinics were closed, or because of fears of COVID transmission. Yet when the utilization of care rebounded in 2021, HSA withdrawals to pay for care (called distributions) did not show a matching increase. The study found that out-of-pocket spending increased by more than 10% in 2021, yet the average HSA balance increased the same year, rising from $2,645 at the beginning of the year to $3,902 by the end of the year.

Older HSA enrollees had higher account balances

The analysis found a correlation between age and account balances—the older the HSA account holder, the higher the average balance. “This result is not particularly surprising, as older workers tend to earn more than younger workers just starting their career, and older workers tend to have had their HSAs for longer, which helps them accumulate larger balances,” the report said.

Secondly, account tenure was strongly associated with higher account balances. “While some account holders spend down much of their balance each year, most do not, and as a result, account holders are well-positioned to build up progressively higher balances year after year. Unsurprisingly, HSAs that had been open for 15 years had, on average, a significantly higher balance than accounts open for only five years ($16,233 and $6,347, respectively),” the report noted.

Older account holders were also more likely to incur health expenses, the study found, and more likely to make contributions to their accounts. The report said 48% of account holders under 25 made a contribution in 2021, compared with 62% of account holders aged 55-64.

Employer contributions seem to spur account holder engagement

Another interesting finding from the study was that accounts with employer contributions seemed different in some ways than accounts that relied only on employee contributions.

For example, the average account with an employer contribution received 14% more in total contributions — $2,612 in 2021, compared with $2,291 for the average account without the benefit of an employer contribution. Accounts with employer contributions also tended to have higher balances. The higher balances and higher contributions may have led to more use of the accounts: account holders who received an employer contribution were more likely to have taken a distribution than those who did not receive an employer contribution (69% compared with 47%), the data showed, and those workers took larger distributions on average ($2,009 compared with $1,677).

Relatively few HSA holders invest with their accounts

The study confirmed a trend that had been seen in past years—that HSA account holders do not invest with their accounts. The ability to invest with HSA funds is one that few account holders take advantage of, the data showed. Only 12% of account holders invested their HSAs in assets other than cash, according to the study. Those that did invest tended to have higher employee contributions and higher employer contributions, and their balances rose faster than accounts without invested assets.

“We find that accounts with invested assets had an average employer contribution of $1,059, compared with accounts without invested assets, which had an average employer contribution of $778,” the study said. “This result suggests that having an employer contribution could make account holders feel more comfortable investing at least some portion of their HSAs, or that account owners with higher balances are more engaged because they have more at stake. This could also indicate that these employers are more engaged with helping employees see the value of using HSAs as longer-term savings vehicles.”

Related: Dos and don’ts of employer contributions to HSAs

Jake Spiegel, a researcher at EBRI and one of the authors of the report, noted that lack of communication about HSA features might play a role in the low percentage of investing. “There are likely some account holders who may not realize they are able to invest,” he said. “Additionally, some HSA providers require that a certain threshold be met before the account holder is allowed to invest. This additional bit of friction may weed out account holders who are less than fully engaged.”

He also saw a link between employee engagement and employer contributions with HSAs. “Account holders who receive an employer contribution are more likely to invest their HSAs, and have higher balances as well,” he said. “The act of funding a worker’s HSA may nudge workers to be more engaged with their HSAs.”