HSAs keep growing, but employer support lags, report finds

Health savings accounts have grown steadily in size and popularity, but most employers with eligible health plans don't automatically set up accounts for their workers, according to a report published today.

Just over a third of companies that have high-deductible health plans automatically enroll the workers covered by those plans into HSAs, the report from the Plan Sponsor Council of America notes. About 15% of people who are enrolled in HSA-eligible plans do not participate in HSAs, the report found.

“[M]any employers still do not have a formal HSA program,” the report stated. “Rather, the HSA is up to the participant to establish and maintain, and for many the HSA-qualifying health option remains an alternative, rather than the primary health care option.”

Still, the majority of employers that offer HSAs make contributions to the accounts, with roughly three-quarters of small businesses, or those with fewer than 200 workers, doing so, according to PSCA’s research. Among employers with 1,000 or more employees, more than 91% make contributions. The figures are based on a survey of 191 plans for the 2020 year.

Despite their utility as retirement savings vehicles, most HSAs are used like checking accounts to cover medical expenses as they arise. But advisers have long touted the tax benefits of HSAs used for long-term investments – the contributions, appreciations and eligible withdrawals are untaxed.

Just over 19% of account holders have investments within their HSAs, according to PSCA’s report. Part of the reason for that low figure is that more than half of employers, including those with more than 5,000 workers, do not characterize HSAs as a long-term retirement savings option.

While companies of that size almost universally include investment options for their HSAs, they had the biggest proportion of workers with eligible health plans who did not participate in HSAs. They were also much less likely than even the smallest businesses, those with fewer than 50 employees, to automatically enroll workers in HSAs if they had a high-deductible plan. About 62% of the small businesses did so, compared with just 25% of companies with more than 5,000 employees, according to PSCA.

Most HSAs require a minimum balance of at least $1,000 before assets can be invested, which provides a cash reserve for medical costs. In its survey, PSCA found the median account balance to be more than $3,500 and the average balance at more than $6,300.

In 2020, the total number of accounts has surpassed 30 million, figures from Devenir’s 2020 market report show. Total assets in HSAs were about $82.2 billion, with about $23.8 billion of that being invested, and the rest being in cash equivalents, according to Devenir.

Research published earlier this year by the Employee Benefit Research Institute found that there's a relationship between HSA participation and 401(k) contributions, with the former “crowding out” the latter. More than half (56%) of people who open an HSA said that they cut back on 401(k) contributions in order to fund their accounts, the group reported.

Read more: Which should investors choose: a 401(k) or an HSA?