Many employee benefits advisors have been recommending that employees with health savings accounts use them as savings vehicles that can be tapped for future medical care; however, studies show that most people are spending the bulk of the funds.
A new study by EBRI found that while more Americans are using Health Savings Accounts (HSAs) to save and pay for medical expenses, few are investing the funds, maxing out contributions, or otherwise using it as a retirement savings tool. In short, many people are not taking full advantage of these plans. But all is not lost, an HSA education plan can help employees who have HSAs understand how to get the most out of them and also how to use them to prepare for the future when they will at some point need the money for medical procedures.
Despite the popularity of HSAs, account holders are not maximizing contributions or investments. The study found:
One-half of HSA account owners contributed to their account in 2017, and 36 percent of HSAs did not receive any contributions (individual or employer) in 2017.
Among accounts with contributions, individual contributions in 2017 averaged $1,949, and employer contributions averaged $895.
Only 13 percent of account holders contributed the fully allowable annual amount.
Three-fourths (77 percent) of HSAs with a 2017 contribution also had a distribution during 2017. Of the HSAs with distributions, the average amount distributed was $1,724, less than the average contribution, resulting in balance increases.
While it might be expected that individuals who invested their account balance were using the account solely as a long-term savings vehicle, the opposite appears to have been true. Both investors and non-investors used the HSA to self-fund current medical expenses. Meaning, most HSA accounts are mostly being used as spending accounts.
FSAs also not optimized Another area where a majority of employees fail to optimize their savings vehicles is flexible spending accounts. FSAs have a "use it or lose it" feature, meaning that most of the funds set aside have to be spent on medical expenses during the year, although a portion can be carried over to the next year.
Still, 32 percent said they had difficulties in spending all of the money in their FSA in any given year. On the flip side, 48 percent said they wished they had put more money into the account.
Both FSAs and HSAs are funded with pre-tax dollars from the employees' salaries.
The takeaway Employees need more education on how to get the most mileage out of their HSAs. Online tools can also help them decide if they should use their HSAs to pay for medical expenses or pay them out of pocket.
These online tools for making "save versus spend" decisions will often be on the HSA account's portal or website. The tools may include retirement savings calculators and health care price transparency services.
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