Most HSA owners taking distributions but few are investing

By Susan Rupe

Average health savings account contributions are well below the maximum allowed, even though most HSA owners are taking distributions from their accounts and few are investing in them.

That was among the findings in a new research report by the Employee Benefit Research Institute.

But even though workers reported spending more on health care in 2022 than in previous years, average HSA balances increased, rising from $4,318 in 2021 to $4,607 in 2022.

Other key findings in the EBRI research report, “Trends in Health Savings Account Balances, Contributions, Distributions, and Investments, 2011–2022,” include:

Relatively low balances: Since the establishment of EBRI’s HSA Database, average account balances have generally trended upward. End-of-year balances increased in 2022 to $4,607, the highest they’ve been since 2010. but average balances are still modest.

Accounts open for just one year ended 2022 with an average balance of $2,070, compared with those open for 10 years, which ended the year with an average balance of $13,594. This also may explain the relatively low average balance observed in EBRI’s HSA Database; since most of the HSAs are relatively new, they have not had much time to accrue progressively larger balances.

Contributions below the maximum: Reversing a trend starting in 2019, average individual contributions increased year-over-year in 2022 to $1,962. Average annual employer contributions, meanwhile, decreased slightly from $793 in 2021 to $762 in 2022. However, the increase in individual contributions was larger than the dropoff in employer contributions, and as a result, total contributions increased from $2,673 in 2021 to $2,724 in 2022.
High incidence of withdrawals: More than half of accountholders withdrew funds. The average distribution rose to $1,868, continuing to rise from the COVID-19-era lows observed in 2020.

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. However, beginning in 2018, the downward trend reemerged, falling from 66% in 2017 to 53% in 2021. In 2022, the share of accountholders rose slightly to 56%; whether this is the start of a new trend of increasing distributions or small year-to-year statistical noise remains to be seen.

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 more likely to take distributions. Among accounts opened in 2022, the average age of the account owner was 39.7 years. In contrast, among accounts opened in 2012, the average age of the account owner was 52.6 years. Accordingly, average annual distributions increased with account-owner age in each year. They ranged from $754 in 2021 for accountholders younger than 25 to $2,212 for accountholders ages 55‒64.

Low use of investments: Few accountholders took advantage of the ability to invest HSA funds, as only 13% of accountholders invested in assets other than cash. However, the share of accountholders who invested their HSAs has increased for six years in a row, which EBRI said is an encouraging sign that accountholders are increasingly leveraging the tax advantages HSAs offer.

EBRI said that over the past decade it has analyzed HSAs, it has found evidence that the longer an HSA owner has had their account, the higher the likelihood that the accountholder invests their HSA in assets other than cash, in addition to contributing more on average and enjoying higher account balances.

Jake Spiegel, research associate, Health and Wealth Benefits, EBRI, said there were several factors behind the low incidence of HSA owners investing their funds.

“First and foremost, a lot of HSA providers require that you build up a certain balance before you're even allowed the option of investing,” he told InsuranceNewsNet. “Another reason is that people who have newer HSAs haven't built up sufficiently large balances, and there may be some sort of comfort factor there, where they feel like they need to save for their deductible, or they need to save for their out-of-pocket maximum before they feel comfortable allocating some money towards investing. We also found that the longer somebody has had their account, the more likely they are to invest.”

EBRI estimates that there were 35.5 million HSAs holding $104 billion in assets as of Dec. 31, 2022.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.