Employer HSA Contributions Make A Big Difference

Posted on Monday, March 18, 2019

Workers who participate in employer-sponsored health savings accounts (HSAs) benefit substantially when the employer makes contributions to the plans on the employees' behalf. That's according to a study from the Employee Benefit Research Institute (EBRI).

Among their findings, the EBRI discovered that health savings account balances correlated strongly with whether the plan sponsor made contributions to HSA balances on the employee's behalf - and the size of those contributions.

What is a Health Savings Account?

Health savings accounts are a type of account that allow taxpayers to save in advance for expected or anticipated health care costs on a pre-tax basis. Amounts contributed to these accounts grow tax-deferred as long as they remain in the account. Withdrawals (distributions) used to pay for qualified health care expenses are tax-free.

To be eligible for a health savings account, the taxpayer must also be covered by a qualified high deductible health plan, which can be bought either in the private insurance markets via an agent or sponsored by an employer. Some employers who offer high deductible health plans in their health insurance offerings choose to make contributions to HSAs on the employee's behalf. These contributions are not taxable to the employee and are tax deductible as employee compensation expenses to the employer.

EBRI's Findings

EBRI's study found that the average balance for employer-sponsored HSAs increased from under $1,500 in 2008 to over $2,000 in 2014. Accounts that had received employer contributions, not surprisingly, had higher balances on average than accounts that did not receive employer contributions.

Among accounts that had benefited from employer contributions, the average balance was over $2,400 as of 2014. In contrast, the average balance among plans that did not receive employer contributions was $2,050.

EBRI also found that the degree of support also made a significant difference in the amounts these accounts accumulated. Among HSAs to which the employer contributed $1,000 per year or more, the average account balance was over $2,700. Where the employer contribution was greater than zero, but less than $1,000 per year, the average account balance was under $2,200.

Account age also matters, EBRI researchers found. The longer the employee held the plan intact, the greater the account balances tended to be. Plans that were five years old or older had average balances of over $3,000. Plans that were less than one year old had balances of less than $1,500.

Younger workers had lower balances than older workers - those under 25 had average balances of $697, while those ages 55-64 had balances of $3,780 on average. Those over 65 had balances of $4,460.

Men had higher balances than women.

Rollover Data

EBRI's research team examined rollover data from health savings accounts nationwide. They found that the total quantity of rollovers in these accounts and similar health reimbursement accounts declined from 2013 to 2014.

The average rollover amount in 2-year old accounts was just over $980. For those accounts that had been held for between 2 and 4 years, the average rollover amount was significantly higher: $1,420. For those who held their accounts for five years or longer, the average rollover amount was $1,430.

Posted in Tax Topics For Individuals

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