Health savings accounts remain an underused retirement savings tool, requiring more education by sponsors and a greater understanding by participants of the tax advantages to increase usage, the Plan Sponsor Council of America reported Nov. 19.
Only 18.9% of participants invested their HSA balances accounting for 25.3% of all HSA assets other than cash, the organization noted in its annual report on HSA practices and management.
From 2020 through 2023, the percentage of investing participants has ranged from 18.7% to 21.5%.
During this period, the average annual percentage of total HSA assets devoted to investments other than cash has ranged from 25.3% to 28.7%
The report, based on responses from 532 plan sponsors, found that 65.8% of employers offered investment options in their HSAs, up from 60% in the previous year’s survey, which covered 2022 activity.
Most employers require a minimum account balance before participants can use their HSA accounts to make investments, including 46.8% requiring a minimum of $1,000 and 33.5% requiring a minimum of more than $1,000. Another 4.7% required a minimum of less than 4.7%; 15% had no minimum.
“Consumers don’t always realize the powerful tax advantages HSAs provide in supporting costly healthcare expenses,” said Ann Brisk, senior director of innovation and strategy at HSA Bank, in a news release accompanying the report. HSA Bank, a health savings account provider, sponsored the report, which covered 2023 activity.
HSAs are available to participants in high-deductible health plans offered by employers. They provide a triple tax advantage. Contributions are made with pretax dollars, investment gains within HSAs accumulate tax free and withdrawals are tax free for qualified medical expenses.
The report said only 27.4% of employers position HSAs as part of a retirement savings strategy, although 9.5% said they are planning to do so.
The report said 58.8% of respondents primarily educate employees about HSAs during open enrollment although 35.4% provide education throughout the year.
When asked their concerns about HSAs, 60.8% said employee education was either a primary or secondary concern.
When asked about HSA education goals, 72.5% of respondents said understanding the tax benefits of HSAs was the primary or secondary priority.
“This research emphasized the need for employers and their providers to bolster efforts in educating employees about using HSAs for medical expenses now and in the future so they will fund it as much as possible,” Brisk said in the news release.
Among respondents, 21.8% had 1,000 or more employees and 25% had fewer than 50 employees. The rest had between 50 and 999 employees.
