Behavioral Roadblocks Facing HSA Investing

By Zach - DEVENIR

HSA investors have long been a key element of the HSA industry. According to Devenir Research, the average HSA investor held roughly $10,948 in investments at the end of 2018. In addition, these investors held $3,580 in cash, more than double the funded deposit balance of non-investors.

There is also evidence to show HSA investors exhibit higher levels of health care consumerism. According to Empower Institute, HSA investors saw an increase of 35% in preventative care visits compared to employees who have simply enrolled and do not invest, and a 31% reduction in total annual claims. (The New Rx for Retirement)

While the portion of HSA account holders investing in their HSA is still relatively small, there have been significant efforts across the industry to increase HSA account holder engagement, including efforts to raise awareness about the availability of investment options. This could help drive an increase in the number of HSA investors. With this in mind, now is a great time to look at some behavioral roadblocks facing HSAs and HSA investments.

Awareness of investments

A large portion of HSA account holders do not know they are able to invest within their HSA. According to research by WEX Health, 61% of HSA account holders surveyed, were either unaware or unsure if they could invest within their HSA (2018 WEX Health Clear Insights Report). Information about investments is often provided as part of an enrollment kit or educational brochure when accounts are opened. However, this can mean that the material is either forgotten over time or never read in the first place. In addition, while investing has always been a retirement account capability, health care has only been associated with investments since the creation of HSAs in 2004, steepening the learning curve of healthcare consumerism.

Getting started

For those who are aware of the availability of investments, it can still be a challenge to get over the hump of setting up the investment feature and exceeding any investment thresholds (Over 80% of HSA providers have an investment threshold). Inertia can be a driving force of inaction, especially when the status quo has worked. Behavioral nudges can help overcome this by reminding account holders of the options available to them. We believe once account holders start investing, they are more likely to stick with their HSA over time. But only a small portion of HSA account holders currently invest.

  • Too many choices

    In some cases, HSA investors are faced with an unnecessarily large number of funds to choose from. While more choices can be beneficial, there comes a point where additional options begin to overwhelm the decision making process and can actually decrease motivation (see When choice is demotivating).

  • Knowing how much to invest

    Most people know that they should be contributing to their HSA, but they may not know how much or how little they need, which can lead to indecisiveness.

Unexpected Medical Costs

The potential for unexpected costs may cause account holders to forego investing for fear of having to liquidate investments to pay for medical expenses. Account holders may be comfortable with taking some level of investment risk in retirement accounts. However, within their HSA (where, presumably, the dollars will be spent on health care), the uncertainty surrounding the timing and size of potential medical expenses may lead to a “bird-in-the-hand” effect, where HSA dollars are kept in cash such that they are a known quantity and readily available for spending.

Overcoming behavioral roadblocks to investing like these is an important factor in creating positive health care outcomes for participants. We continue to be interested in observing how HSAs are being utilized and in finding solutions that lead to positive outcomes. Thanks for reading and let us know your feedback at hsa@devenir.com.

Investments are not FDIC Insured and may lose value. The information above is intended to be used for educational purposes only and is not to be construed as investment or tax advice, or as tailored to any specific investor. Consult a financial advisor or tax professional for more information. Data used may be estimates and may not reflect actual observed data.