2018 was a banner year for HSA investments.
For the first time, invested assets exceeded $10 billion, and the number of accounts reached 25 million.
This didn’t happen overnight; it’s taken a few years for HSAs to gain this momentum. Much of the growth has occurred since 2011, when the last recession was behind us and the economy was in recovery.
During that recession, HSAs were still relatively new and just starting to gain in popularity. According to investment manager Devenir, in 2009 there was just $7.2 billion in HSA assets, compared to $53.8 billion in 2018. And, the amount invested was around $400 million.
Most HSA account holders actually spend down their balance each year. The remainder are savers, and those savers investing HSA funds are the minority. Only about 5% invest any part of their balance.
But, 5% of 25 million is still a lot of investors.
Because much of the growth in HSAs and HSA investments has occurred since 2011, many of the people investing their HSA dollars haven’t weathered a significant financial downturn, and they may not be used to seeing much volatility in their accounts, even though they might be used to it in their 401(k).
And, that could create a bit of a PR issue for HSAs if we enter the recession many economists predict.
Like 401(k) plans, HSAs are investments that require employees to have a level of knowledge and support to help them understand how to manage appropriately, especially in a recession. As an employer, you have a vested interest in this because you want employees to use their benefits effectively, and you want to avoid negative blowback.
While the predicted recession may not materialize, there will certainly be market volatility in the future, and HSA account holders will need education and resources to help them appropriately manage their investments.
Before that happens, consider looking closely at your benefits communications and digital advisors, and doing an analysis of your HSA participants and non-participants. How are you promoting HSAs in your Annual Enrollment materials? How many of your account holders are late-career investors? Are younger employees not taking advantage of the accounts at all?
Consider education around HSAs that takes a cue from DC plans. Help employees appropriately weather any economic downturn by focusing on concepts like appropriate age-based risk and reward, investment horizon and market timing. This will help employees use their HSAs better, insulating them from losses they can’t bear and enabling them to pay for healthcare costs now and into the future.
Get a better idea of how different demographics assess risks when choosing their benefits in our white paper below.