Despite the name, Americans are spending far more than they are saving in their health savings accounts. And not on major medical expenses like undergoing surgery or having a baby. Instead, a new report shows the average American is using their HSA in almost the same way they would a flexible spending account, and as a result they're losing out on potential long-term tax and savings benefits.
HSAs generally come as an add-on benefit with high-deductible health insurance plans, giving you the option of putting money directly from your paycheck, tax-free, into an account to be used to pay for health-related expenses.
But unlike an FSA, there's no use-it-or-lose-it policies associated with HSAs. Your contributions roll over year to year making it a potentially good savings vehicle, in part because you can choose to invest in mutual funds to potentially grow your savings tax-free, similar to a 401(k). You can contribute up to $3,550 per year for self coverage and up to $7,100 for family coverage in 2020.
In 2018, the average HSA balance was $2,803, according to data from the Employee Benefit Research Institute. That's up from the average balance of $1,991 seven years earlier. For those with accounts open for one year, the average individual HSA contribution was $1,166, according to EBRI.
Yet, the average American with an HSA spends about 96% of their annual contributions on qualified expenses such as medications, over-the-counter drugs, first-aid supplies and dental services, as well as eyeglasses and contacts, according to a new report released Thursday by HSA platform provider Lively. The report is based on data from 25,000 randomly selected HSA accounts with the company.
"The majority of users are utilizing their funds throughout the year," Lively's co-founder Alex Cyriac tells CNBC Make It. "There's a much smaller percentage of people who are actually able to put in the money and have it roll over year after year, and really prepare for the longer-term costs that occur."
The typical Lively HSA account holder spent about $1,500 last year. The average person spent half of that on doctor's visits, while about 16% went toward dental services and 10% to pay for prescription drugs. Only about 5% was spent on vision and eyewear.
In total, the average American spends about $5,000 a year on out-of-pocket health-care costs, including insurance, prescriptions and medical supplies, according to the latest consumer spending data from the Bureau of Labor Statistics.
It's not surprising that people are using the majority of their annual HSA contributions on medical expenses, Carolyn McClanahan, a Florida-based financial planner and physician, tells CNBC Make It. "Now deductibles are so high that many people don't have any other money they can use for these expenses," she says.
Cyriac attributes the lack of saving to "ingrained behavior" where people assume these funds should be used to cover health-care costs as they come up. "A lot of people think of the HSA as an FSA, and they have this belief that if they don't use their money by the end of the year, it just goes away — and obviously that's not true."
Lively's report estimates health-care spending will continue to rise as medical costs increase year over year. Since 1984, the average American's out-of-pocket health-care costs have increased over 100%, according to an analysis of the Bureau of Labor Statistics Consumer Expenditures Survey by data company Clever.
"We're living in a world where the simple reality is that health-care costs are getting so expensive across the board that people need better and more ways to save," Shobin Uralil, COO and co-founder of Lively, tells CNBC Make It.
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