The idea behind a health savings account (other than turning you into a savvy health care consumer) is to allow you to grow the account over time to either offset large out-of-pocket costs, or to accumulate money to cope with health care costs in retirement if you are lucky along the way. To make that happen requires that the account grow over time. That’s not going to happen if the money languishes in a near zero interest savings account.
But true to form workers are not paying attention, and probably don’t understand what they have or why. As a result opportunity is being lost and their retirement future jeopardized.
Only a tiny fraction of the growing number of people with health savings accounts invests the money in their accounts in the financial markets, according to a recent study. The vast majority leave their contributions in savings accounts instead where the money may earn lower returns.
About two-thirds of health savings accounts offer individuals the ability to use an investment option, says Eric Remjeske, president of Devenir, an investment adviser for health savings accounts.
Yet few consumers are taking advantage of the investment options.
The EBRI study found that 6.4 percent of people with HSAs invested their health savings account contributions in mutual funds or other financial vehicles. The remainder left the contributions in savings accounts, where their money isn’t at risk from market fluctuations. The study examined 2014 data from 2.9 million health savings accounts with $5 billion in assets, covering about 20 percent of the HSA market.
Not only are HSA funds not being managed to the workers long-term benefit, they are not helping middle and low-income workers that much. That should come as no surprise given the struggle to save for retirement in general. A new study reported in the New York Times found “that high-income and older tax filers both established and fully funded their HSAs at least four times as often as low-income and younger [tax] filers.”