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Are People Using Their HSAs Wisely?

Jeremy Glaser

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. As companies and individuals try to keep health-care costs under control, high-deductible health-care plans and health savings accounts have gained in popularity. I'm here today with Jake Spiegel--he's a senior research analyst at Morningstar's HelloWallet division. He has done some research on HSAs, and he's here to share it with us.

Jake, thanks for joining me.

Jake Spiegel: Thanks for having me.

Glaser: Let's start by looking at the basics of an HSA. How does it differ from, say, a [flexible spending account] or other savings accounts? What makes it special?

Spiegel: An HSA is different from an FSA in a couple of different ways. First off, with an FSA, you can only roll over up to $500 each year; with an HSA, you can roll over your entire balance, year to year, and the contribution maximum is a lot higher, too. Also, you can invest funds with an HSA, which is another huge differentiator.

Glaser: But not everyone has access to an HSA. Who is eligible?

Spiegel: That's right. Only people with a high-deductible health-care plan are eligible for an HSA and we've actually seen a huge uptake in the adoption of high-deductible health-care plans. We found that, of large employers, about 82% offer one. And of those, about a third offer it as their only health-care-plan choice.

Glaser: So, these plans are growing in popularity, and more people are probably having to using them. You have access to a data set that shows how people are using HSAs. Generally speaking, are people using them wisely?

Spiegel: That's a really good question. We found that a lot of people use them in suboptimal ways. For example, of the people who are eligible to invest their HSA funds, we found that only about 4% of people take advantage of that option. We also found that 5% of people contribute the statutory maximum. So, we see a lot of people who are failing to self-insure against the risk that they'll bump up against their health-care plan's out-of-pocket maximum.

Glaser: Let's look at some tips for how to make the most out of it, if you do have an HSA. What would be some of your top ideas there?

Spiegel: If your employer offers some sort of incentive--a dollar-for-dollar match or a percentage match up to a certain point--you want to take advantage of that first.

Glaser: So, if you do take that free money, how much more should you contribute? Does it make sense to get to that statutory maximum?

Spiegel: If you have the money available to do that, you should definitely contribute up to the statutory maximum.

Glaser: Then, how do you make that decision about how much to investment? Let's say you're putting that statutory maximum in--how much do you want to keep in liquid funds? How much can you think about more as long term?

Spiegel: Well, that's up to each individual, and everybody has their own risk preferences. But you probably want to have at least a little bit set aside for medical expenditures that you have upcoming in the next year. But if you can, you want to roll over as much as you can, year to year, in your investment account so that you can really leverage the power of those compound returns.

Glaser: If you do change jobs or change health plans, what happens to this HSA? Is it something that you control directly?

Spiegel: Yes, absolutely. Everybody owns their own HSA. It's not like a 401(k) where you have to roll it over into a new plan if you want to keep contributing to it.

Glaser: Jake, thanks for sharing your research on HSAs with me today.

Spiegel: Sure. Thanks for having me.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.