Are Employees Maxing Out Their HSAs?

High deductible health plans offer low monthly premiums in exchange for higher cost sharing and higher out-of-pocket maximums. Deductibles vary plan by plan, but the statutory minima can be shockingly high before coinsurance kicks in– the minimum deductibles were $1,250 for individuals and $2,500 for families during the study period, with some health care plans’ deductibles rising to even higher levels. Health savings accounts provide a tax-advantaged method for account holders to self-insure against the risk that they might face large medical expenditures over the course of a year. The low amount of contributions for most account holders, and the small number of account holders that contribute the statutory maximum, indicate that many workers are not maximizing the benefits of their HSAs.

Some HDHPs allow for first-dollar coverage for certain types of preventive care, but this is not a statutory requirement. Account holders, particularly those enrolled in plans with dependent coverage, ought to carefully consider self-insuring against the risk that they could incur more than $10,000 in health care bills in a single year. It is beneficial for them to do so using their HSA, given its tax advantages. If account holders do not contribute enough money to their HSAs, they could be forced to use suboptimal ways to finance their medical bills, such as revolving credit or payday loans.

Very few HSA account holders in the sample we studied contributed the maximum amount. For the study period, the maximum statutory contribution was $3,250 for single coverage and $6,450 for family coverage, with an additional $1,000 catch-up contribution allowed for account holders over age 55. Only 5 percent of the account holders in the study contributed the maximum allowed by law.

In fact, most workers contributed much less than this amount. The average deferral among employees who made contributions was around $1,600, and the median deferral was only $700. This behavior is suboptimal for several reasons. First, account holders miss an opportunity to reduce their tax liability in the current year, and, as I mentioned in a previous post, also be missing an opportunity to let their investment balances grow tax-free. Second, account holders risk hampering their health care buying power if they do not sufficiently fund their HSAs and instead must pay for medical goods and services out-of-pocket after withdrawing the entirety of their HSA balances. Many workers, then, are neglecting to self-insure against the possibility that they will bump up against their health care plan’s out-of-pocket maximum. They are also jeopardizing their ability to build wealth through these accounts.

As one might expect, account holders who contributed the maximum to their HSAs were systematically different than account holders who did not. They were much more likely to earn over $100,000, more likely to have higher educational attainment, and were on average older than their non-maximizing counterparts. We found that richer, wealthier, and better educated account holders contributed more on average to begin with, so the fact that these account holders constitute a larger share of those who maximize their HSAs is not particularly surprising.

There are several behavioral obstacles in place hampering the ability of an account holder to maximize the benefits of their HSA. First, HSAs compete with employees’ pre-tax income with retirement plans (such as 401(k)s), FSAs, and transit benefits. Many employees simply do not have the extra money or will not commensurately cut back on discretionary spending to contribute the maximum to their HSAs. Furthermore, the burden of projecting one’s health care costs in a high-deductible health plan is an unfamiliar one for many workers. Saving for health care lacks saliency, particularly if one has not previously incurred a large medical bill. Perhaps as employees become with more familiar with these accounts and estimating their expenditures over the course of year, more account holders will contribute the statutory maximum.


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