WASHINGTON – September 15, 2021 – The Employee Benefit Research Institute released a study finding that between 2019 and 2020, health savings account balances modestly increased by $400. However, average annual individual contributions fell 2%, and average annual distributions declined to an all-time low of $1,700. Lower HSA contributions could be tied to employment concerns related to the COVID-19 pandemic; distribution declines could owe to fewer people seeking routine medical care during the pandemic.
“Trends in Health Savings Account Balances, Contributions, Distributions, and Investments and the Impact of COVID-19” also concludes that while HSAs offer a valuable tax incentive to set aside money on a tax-favored basis for current or future medical expenses, account owners often appear to be using the accounts primarily to cover current expenses, instead of leveraging the tax preference by contributing the maximum or maintaining HSA balances for retirement health care expenses. In addition, account holders’ use of investments other than cash within HSAs remains low, at 9%.
“As individuals become more familiar with HSAs, they are using the accounts more as designed,” said Paul Fronstin, EBRI Director of Health Research and Education. “Account balances are growing over time, enabling longtime accountholders to withdraw larger sums when unexpected major health expenses occur. Plan sponsors that value employee financial wellness can work with administrators and advisors to better educate employees on the use of HSAs, including available investments.”
Enrollment in HSA-eligible health plans and the number of HSAs has increased since the plans first became available in 2004. Today, more than one-half of enrollees in private-sector health plans are in a plan with a deductible large enough to qualify for HSA contributions. Nearly one-half of them receive employer contributions to an HSA.
In fact, the adoption of high-deductible health plans by employers is one of the strongest trends in employment-based health benefits and is driving the trends toward HSA-eligible health plans. It has also been estimated that there were 30.2 million HSAs holding $82.2 billion in assets as of Dec. 31, 2020.
Trends In HSA Balances
The EBRI HSA Database finds that end-of-year balances have been trending upward (with the exception of the dip between 2013 and 2014). Between 2011 and 2020, end-of-year account balances increased from $1,990 to $3,622. Between 2019 and 2020, account balances increased about $400.
Account balances are highly correlated with the length of time an account has been open. The longer an account has been open, the larger the account balance. Accounts open for one year ended 2020 with an average balance of $1,728, while those open for 10 years ended 2020 with an average balance of $9,469.
When examining end-of-year balances by age, balances for all age groups were greater in 2020 than in prior years — except for balances of those under age 25. Account owners ages 65 and older experienced the largest increase in average balance — from $2,599 in 2011 to $6,884 in 2020, or a 165 percent increase. However, this cohort also had the most variability in balance size. This may have had something to do with the fact that once these individuals were eligible for Medicare, they were no longer able to contribute to their account. Meanwhile, they may have been more likely to take distributions as a result of their use of health care services and because the excise tax related to non-qualified distributions no longer applied.
Trends In HSA Contributions
The percentage of individuals making a contribution to their HSA was flat between 2017 and 2020, at 50%. The percentage with employer contributions trended down over that time period, from 51% in 2017 to 44% in 2020.
Average annual individual contributions fell in 2020 after reaching an all-time high in 2019, going from $2,041 to $1,995. While the drop in contributions was relatively small — a 2% decline — it may have been related to COVID-19. It is possible that as unemployment increased, account owners reduced contributions. Furthermore, the decline in contributions may be correlated with the decline in use of health care services that was due to COVID-19.
Average annual employer contributions have been relatively flat and mostly in the $900–$1,000 range. However, they also fell between 2019 and 2020, declining from $918 to $864 on average, a 6% decline. As a result of declining individual contributions and employer contributions, total contributions decreased from $2,959 to $2,859 between 2019 and 2020, a 3 percent decline.
Individual contributions in 2020 were higher the longer an account owner had an account. They averaged $1,144 among accounts opened in 2020 but averaged $3,342 among accounts open for 10 years (since 2010), continuing to increase thereafter.
Regardless of the year the account was opened, individual contributions increased with age. In 2020, account owners 25‒34 contributed $1,167 on average, while those ages 55‒64 contributed $2,794 on average. Employer contributions increased through ages 45–54, but the increases were less pronounced than for individual contributions.
Trends In HSA Distributions
Until 2016, there had generally been a decline in the percentage of accounts taking a distribution. In 2015, 53% of accounts had a distribution, down from 61% in 2011, but between 2015 and 2016, the percentage of accounts with a distribution increased from 53% to 63%, and it increased again to 66% in 2017. Since 2018, it has held steady at about 60%. Among those with a distribution, the average annual amount distributed has varied between around $1,700 and $1,900. But in 2020, average annual distributions fell to an all-time low of $1,714. This may be due to lower use of health care services during the COVID-19 pandemic.
In 2020, distributions were higher in accounts that had been open the longest. Those accounts open for one year had an average annual distribution of $1,087, while those open for 10 years took $2,573 in distributions. The higher distributions associated with older accounts may suggest that individuals have been actively building up their account balances over time, and, as major health expenses have been incurred, account owners have been able to then take larger distributions. This is also supported by the fact that older accounts were more likely than newer ones to have a distribution taken from them. Between 85 and 88% of the accounts open for six to 15 years had a distribution in 2020, whereas only 53% of accounts open for one year had a distribution that year. Newer accounts generally have lower levels of distributions because they have not had enough time to build up a balance and they are unable to be used to cover health care expenses incurred prior to the date on which the account was opened.
It is also possible that older accounts take larger distributions because older accounts are associated with older accountholders who are more likely to use health care services and thus take distributions. Among accounts opened in 2020, the average age of the account owner was 40.4 years. In contrast, among accounts opened in 2010, the average age of the account owner was 52.7 years.
Average annual distributions increased with account-owner age in each year. They ranged from $1,104 in 2020 for those ages 25‒34 to $2,085 for those ages 55‒64.