Investing fell sharply in the past year for the 80% of Health Savings Account (HSA) holders who do not already heavily invest their HSA funds, according to the second annual HSA Account Holder Insight report, recently released by San Francisco-based HSA provider Lively, Inc.
The report says this indicates that COVID-19, unemployment, and the worry caused by both continue to prevent Americans from achieving the long-term benefits of using an HSA to save for unexpected health events and the high cost of healthcare in retirement.
“We knew that Americans were withdrawing funds from their IRAs and 401ks due to the pandemic,” said Shobin Uralil, COO and Co-Founder 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.”
Lively compiled 13 account traits from 50,000 randomly selected HSAs for the study, including accounts with and without active contributions. The report breaks HSA account holders into seven distinct personas based on saving, spending, and investing data, giving a view into how consumers are using their HSA funds.
Key findings show the majority of HSA account holders are using their accounts to focus on yearly and expected tax-advantaged healthcare spending—and 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.
But 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 over $36,000, with 96% of those assets invested. This account balance grew 11%, up from $33,000 in 2020, due to strong performance in investment markets.
Cash balances remained at similar levels from last year, consistent with industry-wide findings from Employee Benefit Research Institute and Devenir. However, distinct from these industry reports, the Lively report found that average distributions increased for persona groups who are actively using their HSA as a vehicle for health spending and decreased for those who are more focused on retirement savings.
More findings
The study also found families have higher HSA cash balances and utilize 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 under $7,000 for individuals. Thirty-three percent of families are investors, compared to 27% of individuals.
Individual accounts had higher balances, in both cash and investments, than employer-sponsored accounts. Individuals had an average account balance of $6,543, compared to $3,356 for employer-sponsored accounts. Average cash balances were $3,144 compared to $2,567, and average investment balances were $9,721 compared to $6,005, respectively.
SEE ALSO:
• Top 11 Health Savings Accounts Rated by Morningstar
• Market Gains Help HSA Assets Approach $100 Billion
• What’s Holding Back Health Savings Account Adoption?
• Health Savings Account Distributions / Contributions Declined in 2020
• Pre-Pandemic Trends Show High HSA Engagement: EBRI
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
