Are HSAs being misused?

The Health Savings Account or HSA is supposed to be a tool to help pay for out of pocket health care costs when a high deductible is involved. It can also be a valuable retirement tool since contributions and earnings on the account are tax-free and can be accumulated into retirement. At least that is the theory.

Based on the following report, saving and investing and accumulating funds appears to be virtually non-existent.

I question the conclusion made in the report that “the rising cost of healthcare is preventing people from achieving the long-term benefits of using an HSA.”

For many low and moderate income individuals with a high deductible plan, funding an HSA and paying OOP costs may be difficult if not impossible, so the conclusion may be valid in those cases, but for others I believe it is different.

There is a general dislike for diverting money from just about any other spending to healthcare. There is a failure to understand all aspects of how HSAs work and there is a failure to think long-term.

The result is, take the cash while you can; not unlike why so many people begin Social Security at the earliest possible age.

SAN FRANCISCO, Calif. – January 23, 2019 – Lively, Inc., creators of the modern Health Savings Account (HSA), today released its second annual HSA Spend Report, giving a view into how and where consumers spend on healthcare costs each year. Findings show that 96 percent of annual contributions were spent on expected expenses and routine visits, indicating that the rising cost of healthcare is preventing people from achieving the long-term benefits of using an HSA to save for unexpected health events and the high cost of healthcare in retirement.  

“Rising healthcare costs will have serious implications on the wellbeing of individuals and families,” said Shobin Uralil, COO and Co-Founder of Lively. “As much as people are increasingly putting HSA money aside, our 2019 report alerts us to one dangerous outcome: rather than saving funds to create a safety net for healthcare costs into retirement, Americans have to use almost the entirety of their HSAs to cover basic health needs every year.” 

Where did the money go? 

In 2019, the average HSA account holder spent their savings on doctor visits and services (50 percent); prescription drug costs (10 percent); dental care (16 percent); vision and eyewear (5 percent); chiropractor (3 percent); lab work (2 percent); and other (1 percent).

Other key findings and trends to note include:

While traditional pharmacies lead in healthcare spending, superstores and online retailers are becoming increasingly popular for consumer health spending

• Traditional national pharmacies reign supreme: Of the total 10 percent Rx spend, 76 percent of transactions were at Walgreens, CVS and Rite Aid. 
• Superstores are nipping at their heels: 8 percent of spending happened at pharmacies in Target, Walmart, Costco and Sam’s Club.

Amazon is lurking: While only a small percentage of HSA purchases occurred through Amazon, the web giant captured a large portion of web and mobile purchases (vs. in-store). 

• Online spending is key for vision & mental health: More than 15 percent of all HSA vision and eyecare spending happened online, dominated by 1-800-Contacts and Warby Parker. Additionally, more than 15 percent of all mental health spending was through virtual experience apps, and/or digital experiences that connect consumers to mental health professionals. 

Healthcare spending increased across all categories

• Doctor visits & services spending increased moderately by 22 percent, from 41 percent in 2018 to 50 percent in 2019.

• Hospital spending increased 114 percent – from 7 percent in 2018 to 15 percent in 2019.

• Dental spending increased 78 percent – from 9 percent in 2018 to 16 percent in 2019.

“High deductible healthcare plans are the new norm, and that’s not going to change anytime soon,” continued Uralil. “Combine that with rising healthcare costs in almost every consumer spend category, HSAs are now vital to affording everyday necessities in this country. As such, we must ensure that Americans with HDHPs take advantage of HSAs to put more savings in their pockets.”


  1. Every HSAS study to date confirms that too many people are not eligible to contribute to a HSAs (75+% of all workers), that too many of those who are eligible never open an account, that too many who do open an account only contribute what they think they will need during the current calendar year (they think of the HSAs as if it were a super-Health FSA).

    According to the Employee Benefits Research Institute, the average contribution to an HSAs in 2018 (results are not split by whether the individual has single or non-single coverage) showed that average total contributions (and averages can be deceiving), combined individual and employer contributions, increased from $2,348 to $2,919 between 2011 and 2018. However, this average was just above the minimum allowable deductible amount for family coverage and less than one-half of the allowable contribution maximum for family coverage.

    Those who don’t contribute enough, an amount that significantly exceeds anticipated current year claims, won’t have money to invest.

    Liked by 1 person

  2. I’ve had an HSA since 2012. I don’t invest the balance (currently 12K) mainly due to the fact that I already have a high % of my other assets in the market. I use the HSA to pay for routine stuff (like contacts, prescription drugs), but I have also used it to pay for large expenses from hospital bills and surgeries.

    So maybe people are not maximizing their HSA accounts, but at least they are getting a nice discount on their health care spending since the funds are tax-free. Also, their employer saves on their portion of the Social Security tax as well.

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  3. “The result is, take the cash while you can; not unlike why so many people begin Social Security at the earliest possible age.”

    I see nothing wrong with taking SS benefits early, if you have other retirement income. For my wife, only receives a small spousal benefit, so taking her benefit at 62 vs 66, she would not get the $20,000 back until age 78. By taking my benefit at age 62 vs 66 and 4 months would not get the $45,344 back until age 77. By taking SS benefits at age 62 it increased our monthly income form $1,696 to $2,984. With COLA increases our monthly income is now $3,092. If I die before my wife, she will then receive my SS benefit, as SS does not look at any of her spousal benefit that she received. Also, she will receive $100,000 tax free life insurance, that I may have had to cancel without the SS income. Total SS benefits from age 62 to age 85 equals $355,488 not counting COLAs. If we would of waited until FRA total SS benefit would of been $405,000. I feel it was worth it to have the extra income from age 62 to FRA. I have seen many times with my relatives who waited for the higher SS benefit check, then go into a nursing home and the nursing home ends up getting all of the SS check anyway. I just turned 64 and at age 65 I will be debt free and even after paying our Medicare premiums, I will be able to bank $1,000 per month. I see all the experts say wait until FRA or even age 70 to start your SS benefits. I wonder how many people die from age 62 until FRA or age 70 and never get even one SS check.

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    1. The goal is to maximize your monthly income. What you collect in total is irrelevant. Delaying the start of SS maximizes long term income when it may be most important. On the other hand if income is needed earlier, than one must start SS sooner. Some people start SS early even if they don’t need the money and then invest it until needed. Keep in mind that at a minimum Medicare will cost a couple $288 a month and Medigap another $400 or so for two.

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      1. “The goal is to maximize your monthly income.”

        Sure that can be one goal, but if you die between age 62 and FRA you get nothing. I needed the extra SS income to pay off debt. And now at age 64 I can bank my SS benefit and live on my USAF pension. I know next year I will have to start paying Medicare premiums, but with Tricare for Life military health insurance as the second payer I will not need to purchase Medigap insurance. I also get medications for free at military pharmacies. Since our SS benefits are below average, the increase in SS benefit by waiting for the bigger monthly check is not as great. The loss of $50,000 in lifetime SS benefits by taking benefits early averages $200 per month over 20 years.

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  4. I am not sure why you think that HSA are being misused? To be fair, I do not have one, however that is exactly how I would use one. With the high deductible plans requiring out of pocket expenses up to $13k+ per year, I would take advantage of all tax savings. A HSA is a way to save on taxes on the money that I am going to have to pay for routine medical care and drugs annually. I would contribute more than my annual expenses in the hope that I would not use it. The best part is if I do not use it, the money carries over, which was not available to people who had the standard healthcare reimbursement accounts, which is what I had.

    Since I did not have a high deductible plan, I used an VEBA account for retirement. This account was for paying medical expenses in retirement. THIS IS MY WORST RETIREMENT INVESTMENT MISTAKE THAT I MADE. The account only earned money market rates and for many years at only 0.05% interest. My plan was very lacking on details and that was my fault. If you don’t understand a plan, get out. I would have better off if I invested the money in my 401K (which I really couldn’t since I was maxing my 401K out in the end) or in an outside low cost index fund. Sure, I would have paid taxes on the money and capital gains, but at least it would have kept up with inflation. My money would have been 2 to 3 times more even after paying the taxes. It will be a few years before I am able to withdraw all my money out of this VEBA and re-invest the funds I don’t use annually.

    I looked at the VEBA account only in the short term for saving me on income taxes. I failed to understand the lack of compounding interest and the large sum of money that I was going to have after 20 years of making deposits into the funds. If HSA accounts are just paying money market rates, I would only keep enough money to handle annual expenses plus two years max out of pocket. Then I would pay the taxes and invest the rest in at least a bond fund to get some compounding and let the money grow. Telling somebody in their 20’s that they should put extra money into a HSA for retirement will be a mistake unless they can invested into equities so that it can keep up with inflation. But investing in equities is not a safe nor smart move for short term money needs of 1-5 years which the HSA must be able to do to cover the high deductible.

    I get that the first goal is to get people to save money. Tax free money is an incentive. However, if you hold an asset for 20-30 years,and it is not getting compounding, you probably not keeping up with inflation. You will be better off paying the taxes. If you are saver, you will be disciplined enough to save the money with or without the tax incentive.

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    1. People with an HSA have the ability to invest in mutual funds once there is a minimum balance and pay no taxes on earnings. Using the HSA for routine expenses is the issue, like an office visit or Rx co-pay. The value in the HSA is long-term. If you are talking about the VEBA I think you are it was intended to be invested like pension assets.

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