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People could save a lot of money on health care—if only they knew how to use health savings accounts

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Health Savings Accounts make a lot of sense–at least, on paper.

For account holders, they provide a triple tax advantage. Money set aside, earned or withdrawn from the accounts to pay for medical expenses is all held out of Uncle Sam’s reach. Also, any untapped money can be used to supplement retirement savings and pay Medicare costs after age 65. Plus, there is the added benefit that the accounts encourage consumers to sift through their health care options for the most cost-effective options, since any savings go directly to their bottom lines. That, in turn, puts downward pressure on spiraling health care costs.

The problem, according to a new study, is that few account holders are doing what it takes to even coming close to maximizing the potential of HSAs.

The study released Tuesday by the employee benefits consulting firm HelloWallet found that many workers who rely on the accounts (which are linked with high-deductible health insurance policies) to cover their health care needs are leaving themselves financially vulnerable in case of medical emergencies. Many workers are not saving enough money in the accounts. Only one in 20 account holders contribute the maximum allowed by the IRS, which is $3,250 a ear for singles and $6,500 for a family, the report found.

Others are leaving whatever money they do save in the equivalent of checking accounts, rather than brokerage accounts, allowing their savings to be ravaged by inflation.  Unlike flexible spending accounts, money held in health savings accounts can roll over one year to the next, allowing account holders to save a substantial sum over time. Yet, only four percent of account holders eligible to invest money held in their HSAs choose to invest their accounts in the market.

In addition, about 5 percent  of people who hold the accounts seem to forget they even have them, the study found. People make minimal contributions or withdrawals, while an additional 10 percent of accounts are basically dormant.

Despite the erratic way people use their HSAs, they are quickly expanding among employers, who are desperately searching for ways to trim the cost of providing health insurance for employees. More than four in five large employers offer HSAs as an option, according to a Towers Watson survey cited by the report, up from just 21 percent a decade ago.

Notably, for 30 percent of employers that offer them, HSAs are the only option for workers–a number that also has grown rapidly in recent years. Overall, about one in five employees who have health insurance on the job have high deductible health plans–more than double the proportion just five years ago, according to a Kaiser Family Foundation estimate cited in the report. And most of those high-deductible plans are married to HSAs as a way of allowing workers to cover their high deductibles.

The rise of HSAs is not unlike the change seen in the retirement coverage arena several decades ago, when employers moved many workers from traditional defined-benefit pensions to defined-contribution plans, like 401(k)s. And like those plans, HSAs can be a good thing—but only if workers use them effectively. So far, they are not.

“We are effectively recycling all the problems of the defined contribution market into the health care market,” said Matt Fellowes,  HelloWallet’s chief executive.

The change has gone largely unnoticed, in large part because of attention paid to the Affordable Care Act, Fellowes observed. But the implications are serious. Give the current way people use HSAs,  “they are left less prepared to pay for unanticipated health care costs,” he said.

As is the case with defined-contribution retirement accounts, HSAs seem to work best for workers with higher incomes, who have more money to set aside. The accounts also are better utilized when employers contribute more to them, according to the HelloWallet study, which analyzed data collected from more than 400,000 accounts.

Fellowes said that HSAs could benefit from some changes that are beginning to make 401(k)-type plans more effective. Automatic escalation of the amount of money  people put into them could help, he said, as would making some type of balanced investment fund a default option for those opening the accounts.

The stakes for getting the plans right are raised each time another employer makes HSAs the health care plan of choice. “Because it is becoming the default plan for so many workers, it is absolutely important” to improve them, he said.