An HSA can help with high costs, but employees need more support in using it

As healthcare costs keep rising, some people are using health savings accounts to be better prepared to handle those costs. And those HSA balances are on the rise. HSA provider Lively reported the average HSA balance rose 11%, from $4,923 in 2024 to $5,457 in 2025.

But although that increase is a promising sign, it masks a deeper issue: Consumers still struggle to navigate a confusing, costly healthcare system, and the difficulties they encounter include managing their HSA. Employees who have HSAs need more education and support from their employers’ benefits managers to help them better understand HSAs and how to maximize them. 

Many account holders tap their HSA for everyday care, while others encounter barriers that prevent them from using their HSA funds. A national survey by InComm Benefits found that HSA account holders were missing out on the full value of their accounts because of usability challenges. The survey showed that some employees failed to submit reimbursements for eligible out-of-pocket health and wellness expenses because they found the submission process to be difficult.

When employees use their HSA regularly, they’re more likely to contribute funds to it, increasing tax savings for both employee and employer. But many employers may not realize that their employees are frustrated with their HSA experiences and are leaving money on the table.

What an HSA does

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced HSAs, which provided the tax-advantaged framework necessary for their widespread adoption. This was a time when consumer-directed healthcare plans were gaining popularity. These plans had an up-front deductible in return for lower premiums after covering some preventive care expenses. They basically put the first dollar cost of healthcare on the consumer. When HSAs were approved in 2003, such plans also incorporated an HSA that the consumer actually owned.

An HSA lets you set aside money that lowers your taxable income and pays for coinsurance, copayments, deductibles and qualified medical expenses. Employers often contribute to employee HSAs and offer matching contributions or provide funds based on wellness incentives. These contributions are tax deductible for the company and are generally excluded from the employee’s taxable income.

Unlike with 401(k)s, not all employees are eligible for HSAs. To be eligible, you must be covered under a high-deductible health plan and have no other disqualifying health coverage such as Medicare or a general-purpose flexible spending account. 

Employees can use an HSA for many IRS-qualified medical, dental and vision expenses. Those expenses include deductibles, copayments, prescription drugs, over-the-counter medications and specialized care such as orthodontics, LASIK or acupuncture. HSAs typically cover GLP-1 medications if prescribed by a licensed healthcare provider to treat a specific medical condition such as obesity, Type 2 diabetes or metabolic syndrome. 

Higher HSA balances are driven by fear, not confidence

Consumers are putting more money into HSAs to cover record-high out-of-pocket medical expenses with pretax dollars. Increased usage of HSAs as long-term investment vehicles has also driven the growth in HSA balances. Many users see HSAs as strategic savings for healthcare costs in retirement instead of for near-term, yearly medical expenses.

But if HSA balances were driven by confidence in the healthcare system, we’d see more routine, yearly spending from HSAs and lower idle balances. Instead, we often see HSAs used as stealth retirement accounts, with money untouched for years. 

Higher HSA balances are sometimes fear-driven — insurance against a healthcare system that many don’t trust even while anticipating they’re going to receive bad health news in their senior years. 

It’s a rainy-day fund reflecting a fear of the unknown and the unpredictability of how a diagnosis can lead to high expenses. Medical costs can have “fat tail risks” — one diagnosis can mean expenses in the five- or six-figure range. HSA balances grow as a buffer against worst-case scenarios.

HSAs are treated differently than checking accounts or even 401(k)s. People subconsciously label them as “hospital emergency money” or “cancer money.” Once you put that label on an account, spending the funds — even for valid medical expenses — feels risky. Fear of future regret supersedes present-day rational use when you need it. 

Many people will delay care and not reach out to a doctor even in the face of symptoms because they don’t believe they have the money to pay for treatment. And having a chronic condition that will have long-term costs creates added stress, which will freeze people and keep them from taking action. 

Why consumers don’t know how or when to use their HSA funds

When consumer-directed healthcare plans were introduced, the idea was to give consumers a certain number of dollars to spend. Then you would give them a menu of options — their healthcare benefit plan — showing how they could spend those dollars. Once they’d met their deductible, the insurer picked up the tab after some copays or coinsurance. The working theory was that consumers would put their money toward smarter healthcare decisions. But that isn’t the case, and even if you have a high deductible, one serious healthcare event can blow through that overnight.

The main flaw in a consumer-directed health care plan such as an HSA is that consumers are left to navigate the intricate and confusing journey with minimal guidance. Some account holders don’t really understand their HSA because the system sets them up that way. Here are some key reasons why.

» HSAs are poorly explained at enrollment. Some companies aren’t as well-informed about HSAs as they are about other benefits. For most consumers, their first — and sometimes only — exposure to HSAs is a rushed benefits meeting or a dense PDF file during open enrollment. The focus is usually on premiums and deductibles, not on how the HSA works or when to use it.

» Tax rules overwhelm people. Qualified expenses, penalties and age thresholds feel complicated, and most people are scared of doing something “wrong” and getting penalized by the IRS. When people feel unsure, they default to not spending the money or using it only for emergencies.

» Healthcare timing is unpredictable. Unlike retirement accounts, health care spending isn’t linear or planned. Consumers don’t know whether they should save some or most of their HSA for later. There’s also the possibility of switching jobs or insurance — both can cause indecision. And there is no clear guidance on when to pay cash or when to use the HSA. One of the best but least explained HSA features is that you can save receipts and reimburse yourself. Because this isn’t emphasized, people never learn when it makes sense to spend the HSA rather than invest in it.

How employers help employees better navigate their HSAs 

Employers and their benefits brokers can make a big difference in employees’ understanding of HSAs by removing confusion and friction. Here are some tips. 

» Describe HSAs as a long-term wealth tool, not just a spending account. Most employees think “HSA = medical checking account.” That’s underselling it. Employers and brokers should clearly explain that HSAs are triple tax-advantaged (pretax in, tax-free growth, tax-free for qualified expenses); they can be used as a stealth retirement account after age 65; and you don’t have to spend HSA money each year.

» Explain employer contributions. Show employees the annual dollar value per employee and reinforce that unused funds roll over.

» Embed HSA education in workflows. Show estimated HSA impact when employees search for care. Explain deductibles, coinsurance and what expenses are HSA-eligible.

» Emphasize high-value health care. Tie good health outcomes to fewer surprise medical bills and less time off work, protecting the employee’s HSA balance and the employer’s total spend. Give real-world examples of how HSAs helped prevent costly mistakes. 

Without accessible, clear and detailed education, employees can struggle to build confidence about getting the most use and value out of their HSA. It’s a benefit that gains added importance as healthcare costs continue to add up. And it’s incumbent upon benefits leaders to give employees the guidance to navigate what can be a confusing road map.

Kara J. Trott, the author of “No One Alone: Humanizing Healthcare as an Outsider,” is the founder and former CEO of Quantum Health. Contact her at [email protected].