HSA – Is it Really a Savings Account?

HSA stands for Health Savings Account, but how much saving are employees really doing with their accounts? With medical expenses continuing to rise many employees are using their HSA accounts to pay for everyday medical expenses rather than saving the money for any catastrophic or unplanned expense. According to a recent report from Lively 96% of HSA funds are yearly spent on qualified medical expenses. What is even more telling is that these expenses are mostly being used to pay for everyday medical care and not hospital care. In 2017 hospital care accounted for 33% of the overall healthcare spend, but HSA account holders only spent 7% of their HSA on hospital care. On the flip side, physician and clinical services accounted for 20% of the overall healthcare spend, but HSA account holders spent 41% of their account on these services. This is a perfect illustration of how these HSA accounts are not being utilized for long term savings, rather they are being used on everyday medical expenses. A key factor in this trend is that healthcare costs are rising at such a significant pace people are spending more on healthcare than they are saving away in their HSA.

Additionally, by not leaving money in their HSA they are also missing out on the long term benefit of saving and investing that money. When HSAs were first introduced, they were touted to be a potential second retirement account to supplement a 401K. According to data collected by the Employee Benefits Research Institute, the average HSA account in 2017 was $2,764 and only 4% of HSAs had invested in assets. With the average account being that low it is likely that a person experiencing a catastrophic event will likely have to pay for those expenses with outside funds. HSA holders are still able to take advantage of the short term tax savings, but they may not be realizing the full potential of the account. One solution to incentivize people to increase the balance of their HSAs and start investing would be expanding the contribution limits of the accounts. If the contribution limits were raised substantially by Congress then a person could put more into their account and potentially have enough money in their HSA to pay for some everyday medical expenses, fully cover any expenses of a catastrophic event, and even potentially have some money left to invest.

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