What HSA and FSA spending trends tell us about participant behavior

How well do you understand how your employees are using their health savings accounts (HSAs) or flexible spending accounts (FSAs)? With open enrollment here for many of you, we’ve compiled some benefit trends we’ve identified based on participant habits to help you better communicate the perks of these accounts and identify education gaps for your own employees. 

Medical FSA spending tops HSA spending

One of the top insights we discovered is that overall medical FSA monthly spend is almost double that of HSA spend. While HSA funds carry over from year to year and can be used as an investment tool for potential growth of your HSA funds, employers can only allow a limited amount of carryover for medical FSA funds ($570 for 2022 plans and $610 for 2023). So while HSA participants can choose to spend less and use their account as an investment tool for potential growth of their HSA funds, the majority of medical FSA funds need to be spent on eligible expenses within a year.

FSA spending peaks late

We also found that the highest spending months for FSAs are in the last quarter of the year, with more than 9.5% of FSA funds spent in December. As we mentioned earlier, FSA funds do not carry over the same way HSA funds do, because of the IRS’ use-or-lose rule. This rule states that all FSA funds must be spent by the participant within the FSA’s plan year, unless their employer allows a limited amount of carryover for medical FSA funds. That means many participants are in a hurry to spend their FSA funds during the last few months of the year so they won’t have any unused funds that will be forfeited to the plan.

HSA spending peaks early

Opposite from FSAs, the highest spending months for HSAs are in the first quarter of the year. In fact, 10% of HSA funds are spent in February. Many employers provide their HSA participants with a standalone contribution or match any HSA funds that employees contribute, which is a major incentive for employees to have an HSA. And many of these employer contributions happen at the beginning of the year, which explains why participant spending is higher in the first months of the year.

HSAs in September and December

There’s also a slight increase in HSA spending in September, and then again in December. The increase in September could be because it’s back-to-school season and participants are using their HSA funds for school-related eligible expenses, such as eye exams, vaccinations, and physical exams. And why would spending increase in December? Possibly because some people may be confusing HSA rollover rules with an FSA. That’s why it’s important to remind employees that all HSA funds carry over year from year.

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers. 

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