80% of HSA Account Holders Decreased Their Contributions in 2021

80% of HSA Account Holders Decreased Their Contributions in 2021

Long-term financial planning and savings for health expenses continue to take a hit, but employers could help
woman paying with HSA card

Despite strong market performance, investing dropped sharply for Health Savings Accounts (HSA) holders in 2021.

According to a report by Lively, an HSA platform for businesses and individuals, 80% of its HSA account holders have lessened their investments in 2021. HSAs offer a pre-tax account to save for health care expenses, as well as invest for retirement.

Lively’s second annual HSA Account Holder Insights report reviewed 50,000 Lively HSA accounts and found that the majority of HSA account holders are spending at the same rate of contributing, preferring to use their accounts for tax-advantaged health care spending. This suggests that HSAs are the latest investment accounts to take a hit in the pandemic-related financial stress that also drove a trend of withdrawing funds from IRAs and 401(k)s.

Most HSA holders are spenders, not savers

Lively identified seven account user personas based on spending, saving and investing behavior patterns and changes since 2020. The majority of users fell into a category of people who have never invested in their HSAs.

Some highlights from Lively’s report:

  • The majority of HSA holders spend on pre-tax health care expenses, taking an average of $1,700 distributions annually.
  • 55% of users have average assets of $1,010.
  • The most investment-savvy HSA holders have average assets of $36,763, with over 98% invested.
  • Only 4.1% use their HSA exclusively as a retirement savings vehicle.

Employer contributions could help

Because the report shows that the majority of HSA account holders are spending at roughly the same rate they’re contributing this year, Lively recommends that employers increase their contributions.

The report also found that:

  • The majority of account holders cannot actively save for unexpected health costs or retirement.
  • Employee contributions increase by 150% when the employer also contributes.
  • Household income was not necessarily correlated with account balance.

In addition, the report recommends further actions that employers can take to increase HSA investment by employees. By providing access to financial planning professionals, employers can help individuals make better use of their HSA accounts and combat the trend of decreasing financial health that’s exacerbated by medical expenses.

Other recommendations for employers include:

  • Increasing HSA education on tax advantages and investing
  • Encouraging maximum annual contributions
  • Reducing or eliminating account fees and investing minimums
  • Adopting easy-to-use and reliable technology

Methodology: 50,000 Lively Health Savings Accounts (HSAs) were randomly selected for its study, including accounts with and without active contributions. Based on this data set of anonymous HSA holders, Lively’s data science team organized and outlined seven HSA "personas."