Here’s why health savings accounts may contribute to inequality

A popular way to save for out-of-pocket medical expenses might be contributing to health-care inequality, new research suggests.

Health savings accounts are tax-advantaged accounts available to Americans with high-deductible health insurance policies. Federal law established them in 2003. Since then, HSAs have grown quickly as employers have adopted high-deductible plans for their workforces to save money.

HSAs offer a three-tiered break on income taxes: contributions are tax-free, as are investment earnings and withdrawals for eligible medical expenses.

When used optimally, they're among the most efficient ways to save and build wealth, according to financial advisors.

However, Black and Hispanic savers, women and low-income individuals aren't using the accounts as effectively as others, such as men, higher earners, and white and Asian savers, according a new report published by the Employee Benefit Research Institute.

The former groups tend to contribute less money to HSAs, have smaller balances and invest these funds less often — dynamics that may reinforce and exacerbate health inequities already present along racial, gender and income lines, according to the report.

"Racially based, ethnicity-based and income-based discrepancies in the usage of HSAs are troublesome," according to the report, which was authored by Jake Spiegel, a research associate at the institute.

"To the extent that those enrolled [in high-deductible health plans] do not also enroll in HSAs, do not take full advantage of the tax benefits HSAs offer or do not save a sufficient amount, they may find it more difficult to pay for medical expenses, and may delay necessary care or forgo it altogether," he wrote. "Delaying or forgoing care has deleterious effects on health."

About 58% of private-sector workers are enrolled in a high-deductible health insurance plan, according to EBRI. These plans generally carry a lower monthly premium but higher out-of-pocket expenses. Total HSA assets eclipsed $100 billion in January, according to Devenir, a consulting firm.

White accountholders have an average HSA balance of $5,004, while Black and Hispanic savers have $3,438 and $3,737, respectively.

That difference isn't due to length of account ownership; each has had their HSA for roughly the same amount of time (three years, on average), according to EBRI.

Instead, it's largely due to contributions: White savers contribute $1,806 to their accounts on average each year, a sum that eclipses that of Black and Hispanic savers by $494 and $412, respectively.

White and Asian savers also take larger and more frequent distributions from their accounts than Black and Hispanic savers, which suggests they're spending more money on health care, the report found.

The report didn't elaborate on broader socioeconomic factors at play. But the data reflect broader wealth and income disparities among Americans.

Whites held 84% of the $142 trillion in U.S. wealth at the end of 2021, according to the Federal Reserve. By comparison, Blacks held 4% and Hispanics 2.5%.

The average Black and Hispanic saver may have less means to contribute money to an HSA each year or to use other funds for out-of-pocket medical costs (thereby deferring HSA withdrawals and building savings for future years).

The EBRI report is based on data for more than 11 million accounts. It uses ZIP codes (those that are disproportionately white, Black, nonwhite Hispanic, or Asian) as a proxy for income, race and ethnicity.