HSA Assets Grow, and Advisors Take Note


What You Need to Know

  • Average HSA balances increased meaningfully during 2021, thanks to greater contributions and good market returns.

  • Continuing the trend observed in years past, relatively few accountholders held investments in assets other than cash in their HSAs.

  • When accountholders have a large enough buffer in liquid assets, they could likely be better off at retirement by investing some portion of their HSAs.

Assets held in health savings accounts continue to grow at an impressive rate, according to new research from the Employee Benefit Research Institute, but account owners still show some hesitancy in investing their HSA assets.

EBRI’s newly updated HSA database shows average HSA balances increased during 2021, despite the fact that health care expenditures also increased in the wake of the COVID-19 pandemic. In fact, the majority of accountholders contributed more in 2021 than they withdrew, even with a sizable average distribution of $1,786.

According to EBRI, this dynamic underscores the improved financial wellness and better preparedness of HSA owners to weather unexpected medical costs. It also shows the need for improved investing support for HSA account owners from financial planners, as most consumers still view their HSAs as pure savings vehicles despite growing access to higher-quality investments.

A Lens on HSA Growth

EBRI’s data shows the average HSA balance increased over the course of 2021, rising from $2,645 at the beginning of the year to $3,902 by the end of the year. As one would expect, the average account balance growth is driven mainly by actively used accounts that had received either a worker or an employer contribution in 2021.

Specifically, the average balance of these active accounts grew more than 50% in 2021, from $2,640 at the beginning of 2021 to $4,352 at the end of 2021.

EBRI’s analysis reveals several predominant mechanisms that were strongly associated with higher average account balances. First, age is strongly associated with higher HSA balances: the older the accountholder, the higher the average balance.

This result is not particularly surprising, according to EBRI’s experts, as older workers tend to earn more than younger workers just starting their career, and older workers also tend to have had their HSAs for longer, which helps them accumulate larger balances.

According to EBRI, each year of experience with HSAs helps account holders better see how HSAs fit into their personal finances. Notably, HSAs that had been open for 15 years had an average account balance over $16,000, while accounts that are five years old hold approximately $6,300.

The Evolution of HSA Investing

Continuing the trend observed in years past, relatively few accountholders held investments in assets other than cash in their HSAs. EBRI’s data shows approximately 12% of accountholders invested at least some portion of their balance in 2021.

As EBRI’s analysis points out, this figure appears low given the tax-deferred power of investing within HSAs, but it also reflects the fact that not every HSA dollar can or should be invested. Simply put, account holders should not invest their HSA balances in risky asset classes if they expect to use them in the short term.

However, as EBRI’s experts suggest, if and when accountholders have a large enough buffer in liquid accounts to weather a large or unexpected health care expense, then they could be better off at retirement by investing some portion of their HSAs.

EBRI’s data shows accounts with invested assets look a lot different than accounts without invested assets. For example, accounts with invested assets tend to have much higher account owner contributions than those without.

According to EBRI, HSAs with invested assets saw their balances rise far faster in 2021 than accounts without invested assets. This can be tied to the fact that many asset classes enjoyed a bull market in 2021, when the S&P 500 returned over 26%.

During the year, the average account containing investments other than cash grew by $4,817, while the average account without investments grew by a mere $124.

Financial Advisors Are Taking Notice

Separate research published this week by Vestwell shows financial advisors are increasingly interested in serving the HSA marketplace, both in the workplace as institutional consultants and also in their capacity serving individuals and families.

Vestwell’s research shows that a majority of financial advisors are interested in expanding their practice to incorporate other types of savings accounts in the coming year. Breaking down their preferences into specific programs, Vestwell finds the largest area of interest is for adding HSA services, at 46%, followed by 529 college savings (32%) services and emergency savings accounts (18%).

According to Vestwell, these numbers “may foreshadow a future in which advisors increasingly operate full-service practices.”

“In an environment where a majority of advisors surveyed plan on growing their practice in the new year, the advisors who invest in their relationships and make the first move on expanding services can begin the year with a head start,” the Vestwell report concludes.