Plan sponsors who would want to encourage their employees to use HSAs for that purpose may want to consider an alternative approach: the savings account. It is highly likely that many participants do not use their HSAs to invest excess funds because they do not have excess to invest.
Recently the IRS announced an increase in the Health Savings Account (HSA) contribution limit for 2026 raising the cap from $4,300 to $4,400. This equates to an increase of only 2.3%, the exact amount of the consumer price index’s year over year increase in 2025. Yet, according to data from the American Medical Association (AMA), it fails to keep pace with the increases in health care spending by the average household in the U.S.
The AMA noted that health care spending, a somewhat volatile value, recently increased 7.5% to $4.9 trillion or $14,570 per capita. That means at the current cap in yearly contributions, the average HSA holder most likely cannot add to savings year over year. The AMA also noted that “[f]or the first time since the pandemic, the growth in health care spending (7.5%) outpaced GDP growth (6.6%).”[1]
A growing number of plan sponsors have begun to voice concerns about HSAs, noting that most participants do not invest the funds they set aside in those plans. Instead, they keep the funds in a cash position. Some experts have suggested that greater education for plan participants could help move more of those assets into investment positions. Yet, that might be the wrong approach if employees are using HSAs to reduce the impact of some of those rising health care costs. That could explain why despite their limited use as investment options, HSAs are growing in terms of participant use.
Recently, the Plan Sponsor Council of America (PSCA) released the results of its yearly HSA Survey. It found that educating employees about HSAs increases their participation. It was also found that 90% of eligible employees had HSAs and 75% made contributions to them regularly with an average account balance of approximately $6,000.[2]The survey also found that only 18% of participants invested their HSA balances, the rest were held in cash positions.
The survey authors echoed others by arguing that lack of education around using an HSA as an investment tool could be why more employees did not invest their funds. “The survey showed that only a third of employers talk to employees about using their HSA as part of a retirement planning tool and less than 30 percent enable participants to include their HSA balances alongside their retirement accounts for a holistic view of total savings.”[3]
This mismatch between purpose and use may have led to some of the proposed changes to HSAs in the recent 2025 federal budget proposals. For example, the new law could make HSAs easier for couples to use. Previously, HSA funds could be used for either spouse’s needs but were individualized as to contributions. The new law would change that.
Making it easier to contribute to HSAs could make it more likely that employees will invest excess funds. Plan sponsors who would want to encourage their employees to use HSAs for that purpose may want to consider an alternative approach: the savings account. It is highly likely that many participants do not use their HSAs to invest excess funds because they do not have excess to invest. Consider that the contribution cap on HSAs is $4,300. Yet, the average HSA balance is slightly more than just a third over the yearly contribution cap. The numbers on how many people in the U.S. still do not have an emergency fund have barely budged. According to a 2025 U.S. News survey, 42% of Americans do not have an emergency fund at all. And what is worse, “60% said they'd had an unexpected expense pop up in the past year.” [4] This may explain why 80% f HSA holders keep funds in cash, not investment, positions.
Plan sponsors who want to encourage employees to use their HSAs for investing may want to consider not if they educate their participants about it, but rather how. Too much encouragement to invest when employees are struggling with emergency costs could sound out of touch. Instead, plan sponsors may want to discuss both topics together.
[1] https://www.ama-assn.org/about/ama-research/trends-health-care-spending
[2] https://www.psca.org/news/psca-news/2024/11/survey-employers-focused-on--hsa-education
[3] https://www.psca.org/news/psca-news/2024/11/survey-employers-focused-on--hsa-education
[4] https://www.usnews.com/banking/articles/2025-financial-wellness-survey#:
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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