Lola Butcher

HSAs offer an easy way to save money, have it grow, and not be taxed when it is withdrawn. Why don't more people take advantage of this?

Lola Butcher

It may be the best savings vehicle available for average Americans, but, like Rodney Dangerfield, the health savings account gets no respect.

A fraction of the people eligible for an HSA have actually opened one. Of those who do have an account, many do not contribute to it.

The majority of those who do put money in an HSA spend most of it on current medical expenses, rather than saving for the future.

Some 10 percent of health spending account owners do not know if they have an HSA, a health reimbursement account, or a flexible spending account.

Considering that the HSA, with its trio of tax advantages, is the federal government's strategy for encouraging consumer-directed health plans, which are supposed to transform the way Americans use the health care system, these facts are rather troubling. Or not, depending on your professional perspective.

Meanwhile, most of those outside the health insurance industry are wondering how an HSA even works and perhaps feel a bit wistful about the once-hated HMO.

Regardless of one's perspective, HSAs are confusing because, thanks to the variety of study designs, reports tend to contradict one another.

One study — the Consumerism in Health Care Survey, conducted by the Employee Benefit Research Institute and the Commonwealth Fund — found that, as of October 2006, 1.3 million people ages 21–64 had a high-deductible plan with an HSA or an HRA. Another 8.5 million adults in that age group had a plan with a deductible high enough to make them eligible for an HSA but had not opened an account.

Of those who do have accounts, the EBRI/Commonwealth study found, nearly 20 percent do not contribute money to it — and 30 percent reported having less than $200 in their account. (See "A Peek Inside the Bank," below.)

Strong or weak?

Meanwhile, Forrester Research, citing its online survey of 4,535 U.S. consumers with health insurance, reports that, as of the second quarter of 2007, about half the people enrolled in high-deductible plans are enrolled in either an HSA or HRA.

"HSAs are really beginning to take off," says Carlton Doty, a senior analyst at Forrester. "Enrollment this year in HSAs has more than doubled since last year, and I expect it to do so again in 2008."

Paul Fronstin, director of health research and education at EBRI, is less sure of that. His research found most eligible people who did not open an HSA said they did not have the money to put into an account, a reality or perception that may be difficult for HSA enthusiasts to counter.

But they must try, in the view of Doty and others who believe that people who use HSAs as a long-term savings vehicle will practice better health habits and make smarter health care purchasing decisions. His research found widespread confusion among consumers about HSAs.

"If health plans and financial institutions fail to step up here and educate consumers on the benefits of HSAs, I think that's going to have a detrimental impact on the benefit that CDHC can have on the marketplace in terms of reducing cost," he says. "If HSA owners are just out there using it as a spending account, they're defeating the purpose."

That does not worry Fronstin, who thinks expecting people to sock money away long-term in an HSA is not realistic.

"Let's face it — the savings rate in America is ridiculously low," he says. "People have had all kinds of opportunity for savings that they haven't taken advantage of."

He believes consumer engagement — choosing the best quality health care services at the best price — does not hinge on a high-deductible health plan or an HSA.

"People need information and we haven't supplied it. Were we to do that," he says, consumer engagement "would take off, even in the absence of HSAs. If the information was out there and was user-friendly, people would use it because they want the best care, whether they are paying for it or not."

A peek inside the bank

Exante Bank, one of the nation's largest administrators of health savings accounts, says most account-holders are spenders, meaning they use most of the money in their HSA each year.

But that is not necessarily bad, says Todd Berkley, a vice president of Exante Financial Services.

"We are moving away from this one-size-fits-all mentality," he says. "HSAs deliver different value to different people. We see that clearly in the way they use their accounts."

At the end of 2006, Exante, owned by UnitedHealthCare, analyzed the use of HSAs by more than 212,000 individuals for at least three months. The study prompted researchers to identify three categories of HSA owners: spenders, savers, and investors.

Although Exante wants to encourage more account owners to adopt the investor mindset, its current strategy is to use different types of accounts — for example, accounts that have low costs or accounts that offer high interest rates and investment options — to attract people into the HSA world.


These people — roughly 50 percent of Exante's HSA owners — carry balances between $400 and $600 and spend about 80 percent of contributions on current medical expenses. As a group, spenders contribute an average of $133 per month to their HSAs, which is more money than savers contribute. However, spenders make 12 withdrawals per year.


The second largest group — indeed almost 50 percent — are considered savers, with typical balances of $1,500 to $3,000. Some people who rolled over their old medical savings accounts have balances as high as $50,000.

On average, savers spend only 8 percent of their contributions each year and make about one withdrawal every five months. About half of savers have never withdrawn from their account; those who do use the account for current medical expenses, generally carry higher balances, and contribute more each month than those who never tap the HSA.

Savers, on average, contribute $124 per month, slightly less than spenders.


Less than 5 percent of Exante's HSA account holders, investors held bank balances of more than $2,000 and invested another $3,000 in mutual funds that are available to Exante HSA owners.

Investors make contributions at twice the rate of savers or spenders. However, they exhibit some behaviors associated with spenders, in that they maintain low bank balances and use the account for current medical expenses.

For further reading

Fronstin P, Collins SR. The 2nd Annual EBRI/Commonwealth Fund Consumerism in Health Care Survey, 2006: Early Experience With High-Deductible and Consumer-Driven Health Plans. Employee Benefit Research Institute Issue Brief 300, December 2006.

Doty CA. Health Savings Accounts: The Battleground for Customer Loyalty, Forrester Research Inc., July 2007.

Doty CA. Are Consumers Embracing the Convergence of Healthcare and Finance? Forrester Research Inc., August 2007.

Lola Butcher, a frequent contributor, covers employer issues and consumer-directed health.

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