As use of Health Savings Accounts continues to grow, studies show that participants and investors could be getting a lot more bang for their buck.
A recent report from EBRI indicates that account holders appear to be using HSAs as a special checking account instead of an investment vehicle, despite tax incentives offered to participants that wish to set aside money for future medical expenses.
HSAs are tax-exempt accounts that must be paired with a high-deductible health plan. Both employers and employees can contribute to HSAs, and account funds can be used to pay for health-care expenses.
The coupling of HSAs with high-deductible health plans can help control costs, partly because the deductibles and out-of-pocket requirements of HDHPs make them less expensive for plan sponsors than traditional health plans. In addition, when plan participants control the money in health savings accounts, they have direct financial incentives to shop for less expensive care.
In recent years, HDHPs have become one of the most common plan types, surpassed only by preferred provider organizations. Statistics from EBRI show that an estimated 20 million policyholders and their dependents were enrolled in HSA-eligible plans in 2016.
The adoption of HDHPs and HSAs shows no signs of slowing down, especially if lawmakers push through legislation to change or replace the Affordable Care Act. For example, the proposed American Health Care Act (H.R. 1628) includes provisions that would raise the limit on HSA contributions and lower the excise tax on distributions for non-qualified expenses.
While employers hope that these account-based plans will encourage employees to shop around for the most cost-effective health care, a recent Morningstar study indicates employers may also want to do their own shopping when deciding which HSAs to offer.
“HSAs are becoming increasingly popular, but investors have few resources at their disposal to navigate the hundreds of plans available to them. Our study establishes metrics that investors should consider when choosing an HSA,” Leo Acheson, Morningstar’s lead research analyst for health savings accounts, said in a press release.
Of the 10 HSA providers evaluated, only one plan provided a significant value to participants when used as both a spending vehicle and an investment vehicle.
The plan, maintained by The HSA Authority, received both positive and neutral marks. As a spending vehicle, it received a positive mark for plan fees and a neutral mark for interest. As an investment vehicle, it received positive marks for price, performance, and investment quality and a neutral mark for menu design.
When looking at plans used to cover current medical expenses, account maintenance fees should be the most important consideration, the report said. Varying wildly by provider, the fees range from no charge for accounts with The HSA Authority or Alliant Credit Union to a monthly fee of $4.50 at Bank of America. Other plans, including BenefitWallet, HSA Bank, SelectAccount, Optum Bank, and UMB Bank, waive the fee for accounts with deposits that exceed certain thresholds, the report said.
When looking at plans used as investment vehicles, only four of them received overall positive assessments. Those plans—from Bank of America, SelectAccount, HSA Bank, and HealthEquity—all designed robust menus for investors and offered exposure to core asset classes while limiting overlap, the report said.
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