HSA Savers on the Rise, But Most Not Maximizing Contributions
While the majority of HSA account holders are spenders, a new report indicates a potential shift in the saver/spender trend, as more employees express concern with health care costs in retirement.
ConnectYourCare’s 2018 report — “CDH Account Trends: Tax-Advantaged Account Usage, Outlook and Perceptions
” — finds that nearly 82% of survey respondents regularly use their HSA funds throughout 2017 to pay for out-of-pocket costs, but 44% of respondents actually saved 50% or more of their contributions. In addition, more than two thirds (68.7%) of employees identified health care expenses as their primary concern in retirement, which is up more than 5% from the previous year’s findings, and significantly higher than lifestyle or other retirement expenses (27%).
Based on two separate studies of more than 40,000 survey respondents and data from more than 1 million accounts across the nation, the report analyzes health care account usage trends, contribution and spending patterns, trends by account holder age and account holder perspectives on HSAs, FSAs and HRAs.
The biggest perceived savers using self-reported data were those under age 25 (25.6%) and those above age 65 (22%), who said they “try to save/invest HSA funds as much as possible for retirement or large future expenses.” The biggest perceived spenders were in the age 35-54 cohorts, with only 15% saying they try to save their HSA funds, while more than 84% state that they regularly use their HSA funds to pay for out-of-pocket costs.
The perception that HSAs can be used as savings vehicles does appear to be increasing, however. The percentage of respondents who chose to enroll in an HSA as a savings vehicle for future health care needs, over more immediate benefits like tax savings and lower premiums, rose to nearly 45% in the 2018 report, up from 40.5% in 2017.
But while the trend lines on using an HSA as a savings vehicle are improving, few HSA account holders are leveraging HSA investments, and among those who do, most expect to withdraw invested funds prior to retirement. So why are more not investing? According to the report:
- 36% of non-investors cite low balances in their HSAs;
- 9% say they were not aware of investment options;
- 6% say they are not sure how to get started;
- 8% cite concern with investment loss/risk tolerance; and
When asked what was preventing them from investing their HSA funds, the top responses suggest that there still are some challenges to overcome:
- “An HSA is not an investment vehicle; it is a health care cost vehicle.”
- “I can’t afford to contribute to my HSA because I can’t afford to bring home less pay.”
- “I currently use all my HSA funds to cover health care expenses. There is no balance left to invest.”
“These findings reinforce the needs to continue the health to wealth conversation with employees and build innovative programs and resources that grow employee education and encourage employees to plan for the future,” the authors write.
These answers also may help explain why participants aren’t fully taking advantage of the contribution limits. In reviewing 2017 contribution data for more than 1 million accounts, the report notes that “one pattern is clear: employees and employers alike are not maximizing the tax advantages they have available to them through these accounts.”
According to the data, the average contribution amounts for HSAs was just 61% of 2017 individual-only limits, even when combining employer and employee contributions. On a positive note, there was a 9% increase in employee HSA contributions ($1,195) from the previous year, but a 14% decline in average employer contributions ($907), according to the report.