As an investment vehicle, health savings accounts are in a "yes ... but" stage.
Yes, the aggregate assets of investments within HSAs have grown over time. But relatively few people use their HSA dollars for investments, preferring to retain the money in cash for spending on medical matters.
Yes, investments are taking an increasing percentage of overall HSA assets. But investment guidelines among HSA providers vary extensively and sponsors take different approaches to encouraging investments. Meanwhile, industry members and researchers say more education is necessary to make sure participants understand HSA tax benefits and investment opportunities.
"People are still trying to figure out how HSAs fit into their retirement savings," said Jake Spiegel, research associate at the Employee Benefit Research Institute, Washington.
EBRI's database showed 9% of HSA accounts had investments other than cash last year, a slow, almost steady, rise from 2% in 2011. The database contains 11.4 million accounts with assets of $32.9 billion as of Dec. 31, 2020.
The database covers HSA participants in retirement plans as well as individual participants with HSA accounts for which investments are allowed. About three-fourths of the accounts were opened since 2015.
"The transition in positioning of HSAs as a health benefit to a retirement consideration is still a work in progress," said an Aug. 10 report by the Plan Sponsor Council of America, referencing the latest annual survey of 191 employers with HSA-qualified health plans.
Total assets of health savings accounts reached $92.9 billion by June 30, with investments representing an estimated $30.4 billion, said a recent report by Devenir Group LLC, Minneapolis, an HSA researcher and investment consultant.
Total HSA assets rose 26% for the 12 months ended June 30. Investment assets climbed 73% during the same period.
Both Devenir and EBRI found that investments have a strong influence on the size and composition of HSA accounts.
Devenir reported that the average HSA balance as of June 30 was $17,954 for accounts with both cash deposits and investments, or 6.6 times the average balance for accounts without investments.
EBRI reported that when HSA participants include investments in their accounts, these assets represent 74% of their HSA balances.
"That subset of the population is clearly using HSAs as a long-term savings goal," Mr. Spiegel said. EBRI's database shows that the longer an account has been open, the larger the percentage of the balance is invested assets.