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Few Health Savings Accounts Owners Choose To Invest That Money, Study Finds

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.

Source: Few Health Savings Accounts Owners Choose To Invest That Money, Study Finds | Kaiser Health News

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.”

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6 replies »

  1. My only regret, when it comes to HDHP/HSA is that I am 63. Had the added that structure in 1974, instead of 2004, back when I was young and healthy, I could have accumulated/prepRed for post employment needs. So, my goal/legacy is to ensure my children accumulate such assets.

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  2. A big benefit of the HSA is that it allows you to pay out of pocket costs with pre-tax dollars, if like for me a flexible spending account isn’t available. Premium savings of a higher deductible plus tax savings on out of pocket puts me ahead. Any accumulation over time is a bonus. After maxing my HSA for 20+ years just this year I have a large enough balance to shift some to an index fund and still have a large enough cash balance to cover my annual out of pocket maximum if I should need to. Just like with regular investing money you are likely to need to use in the short term should be in cash.

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    • Just to clarify, HSAs have only been available since 2004. You were lucky to be able to save and/or not have to use the entire account to pay out of pocket costs each year. Many famines forced into HDHPs and HSAs are not that fortunate.

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  3. The issue here is one of “choice architecture”. Corporate benefits weenies structure their enrollment processes, and more importantly, their claiming processes as if a HSA were nothing more than a variant of a FSA. So, since no one (I know of) can invest FSA monies, many workers believe that HSA monies cannot be invested either. Corporate benefit weenies make this even worse by incurring the expense of issuing a debit card – to facilitate claiming of monies in the short run. Many look at the HDHP/HSA as an option to raise point of purchase cost sharing; not as an option to help people prepare for the future, in years when they will need monies to defray out of pocket costs. So, if the design is all wrong in the majority of HDHP/HSA positioning and communication, is it any wonder that people are not maximizing the value of the HSA option/opportunity?

    When we added HSAs in 2005, we added five investment options at the same time. We did not add debit cards.

    So, I for one have my HSA money invested in a combination of index funds – with an eye on long term investing, and prefunding a substantial portion of my retiree medical costs.

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    • Very good points, I never thought of it that way. I was opposed to HDHP so I never put them in. I spent a lot of time and money on communications and you are right that what they communicate today is inconsistent with the long-term objective of these plans.

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