Though there has been massive growth in the health savings account market, driven by the popularity of high-deductible health plans, it looks like most HSA plans could use some work.
In a move to help plan sponsors and plan participants know if they are working with a well-rounded, well-organized HSA plan, Morningstar recently evaluated 10 of the largest HSA providers in the country to see how they stacked up in achieving the two main goals of an HSA: to help people pay for current medical expenses; and as an investment account that can be used to pay for future medical expenses.
What the research and investment firm found is that there are “good options available but also generally room for improvements within the industry,” says Leo Acheson, senior analyst at Morningstar.
Morningstar looked at plans from Alliant Credit Union, Bank of America, BenefitWallet, HealthEquity, HealthSavings Administrators, HSA Bank, Optum Bank, SelectAccount, The HSA Authority, and UMB Bank.
On the spending side, fees are the most important determinant of whether a company scored well in the Morningstar evaluation. Also, as HSAs hold money in what is basically a checking account that is subject to interest rates,the study looked at those rates as well.
“Generally, interest rates are very low given the [current economic] environment, so it usually doesn’t move the needle that much, but it is a consideration,” Acheson says.
Acheson points out that it can be difficult to uncover exactly what the fees are in a given HSA. Some plans are very forthcoming with expenses such as maintenance and investment fees, while others make it harder to identify exactly what a specific fee is for. “That’s one area the industry could improve on: transparency,” he says.
How the plans stacked up
Plans that didn’t charge maintenance fees received positive assessments in Morningstar’s research.
If a plan sponsor is looking for an HSA with a good investment program, it needs to pay attention to price, the design of the investment menu — meaning what asset classes are offered and how many choices are available — and make sure there is limited overlap between those options, Acheson adds. It also is important to examine the quality of the investments that are included.
In evaluating the different HSA providers, Morningstar uses its own research on more than 3,000 mutual funds globally to determine if an HSA plan offers quality investments.
Of the 10 HSA providers evaluated by Morningstar, only one company, HSA Authority, did well on both the spending and investing sides of the plan.
On the spending side, three of the companies had a positive assessment: Alliant Credit Union, SelectAccount and The HSA Authority. On the investing side, four companies had a positive assessment: Bank of America, HealthEquity, Optum and The HSA Authority.
“Your average person is still learning about exactly what HSA plans are and the benefits they are offering,” Acheson says. “They have definitely gotten more traction as part of healthcare reform, and there is an interest in increasing contribution limits to HSAs. It has drummed up attention politically that way. We expect the growth will continue in the space, but certainly improved plans would also spur growth.”
The Kaiser Family Foundation estimates that by 2018 there will be 27 million HSA accounts and more than $50 billion in HSA assets. Currently there are about 18 million accounts , with $34.7 billion in assets.
Because healthcare is the No. 1 expense most people face in retirement, the industry predicts these types of investment and spending accounts will continue to grow in popularity.
Brian Graff, CEO of the American Retirement Association, said at a conference earlier this year that plan sponsors and retirement advisers should encourage employees to max out their HSAs before they match their 401(k) plans.
The Plan Sponsor Council of America tracks how plan sponsors are using HSAs and whether they believe these accounts should be used as a retirement savings vehicle. It finds that three-quarters of employers see the HSA as part of their retirement benefits strategy and nearly 60% believe HSAs should replace flexible spending accounts. It also finds that nearly three quarters of employers believe HSAs should be open to all employees, not just those enrolled in high-deductible health plans.
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