We've published new research. Read highlights from our 2019 assessment of HSA providers.
Health savings accounts have rapidly proliferated over the past decade, and they are quickly assuming a central role in personal finance. HSAs accompany high-deductible health plans and were created in 2003 as a part of the Medicare Modernization Act. That makes them a relatively new type of account, at least in the context of 401(k)s and IRAs.
The growth of health savings accounts
This market has seen tremendous growth in a short amount of time. Only 2% of workers were enrolled in an HSA-eligible health plan in 2002 compared with about 20% in 2016, according to annual surveys by the Kaiser Family Foundation. Devenir, an HSA consultancy, estimates that assets deposited in HSAs has grown by 13% annually over the past decade, and the firm projects that assets will grow another 20% annually by the end of 2018.
Because HSAs have only recently become a prevalent account type, they have not yet been widely researched. There is not much publicly available data on HSAs and accountholder behavior for researchers to analyze. But with the limited data we have, we can make a few generalizations.
Two years ago, I examined HSA accountholder behavior in a white paper. I found that, in general, few accountholders contribute the maximum they’re allowed to and few accountholders invest their HSA assets. Recent research has produced similar findings.
How we analyzed HSAs
We assessed some of the larger HSA providers in the country to find out whether they were meeting the needs of accountholders. We analyzed the plans from two perspectives: how the account fares as a spending vehicle, and how it fares as an investment vehicle. We found that some HSAs work well as spending vehicles but might not perform as well as investment vehicles, and vice versa. Only one provider earned positive assessments on both the spending side and the investment side, indicating that HSA providers have some room for improvement in this market.
It’s helpful to look at HSAs from these two perspectives, because each strategy requires something different from the HSA.
HSAs as spending vehicles vs. investment vehicles
Using an HSA as a spending vehicle may be the best approach for an accountholder who expects to incur high medical expenses and lacks the resources to pay out of pocket. This strategy is best served by an HSA that offers a low, or zero, monthly account maintenance fee.
Using an HSA as an investment vehicle requires a different calculation. One HSA feature allows accountholders to pay for a qualified medical expense out of pocket and then withdraw money for that expense many years later, with the proper documentation. So, accountholders who have sufficient liquid savings may find it more beneficial to pay for medical expenses out of pocket and invest the funds within their HSAs. This allows their investments to grow over time. This strategy is best served by an HSA that offers a strong investment lineup and low fees.
Both approaches prioritize different features. And in our next post in this series, we'll take a closer look at using HSAs as spending vehicles.