When health savings accounts (HSAs) were introduced in 2004, the IRS required that the plans be held by a qualified custodian or trustee, similar to IRAs. As a result, many custodians created their own HSA programs or chose to provide custodian services for firms interested in entering the HSA market.

Fast forward to 2010 – today, there are many HSA custodians to choose from, and as an agent working with both employers and individuals, it’s important to understand the custodian’s role and the differences among them. Many agents choose to go with the HSA associated with the insurance carrier that offers the associated high-deductible health plan (HDHP). There are, however many more available options that may be a better fit for your client. Since few individuals, corporate clients, or employees are familiar with HSA custodians, they rely on you to provide education and direction.

Before we analyze the differences among custodians, it’s important to understand the universal characteristics of HSAs: They’re used to pay for “qualified” medical expenses on a tax-free basis, and offer the opportunity to accumulate those funds year after year.

HSA custodians can, however, provide significantly different options. They have the same basic role across the board – opening accounts, accepting contributions, monitoring distributions, keeping records, and providing tax reporting. Yet the breadth of their services, fee structures, and approaches to client service can dramatically vary. Here, then, is a summary of the more important criteria to consider when reviewing a potential or current custodian.

1. Length and scope of HSA custody experience

How long has the firm been providing HSA custodial services? How many individual or group HSA account owners does it serve? The more years it has in the business and the more accounts handled, the greater the likelihood that the firm has a strong track record of satisfying individual account holders and meeting regulatory requirements.

2. Account fees

Clients and prospects want to know the associated costs of an HSA. How much does the custodian charge for services? Does it charge monthly, or annually? Are the fees up front, or are there many hidden costs? Many HSA custodians charge individual setup fees, monthly administrative fees, and transaction charges. Other custodians charge one-time annual fees so that all the charges are up front and clients can avoid “nuisance” fees. Not only do custodians charge fees in a variety of ways, they also charge wildly different amounts: A recent survey revealed HSA fees range from $0 to $185, with an average fee of $13.30 (based on $2,500 average balance).

3. Client service experience

How do your clients want to be serviced? Is it mainly through the Web or email? Or is it important that they be able to speak directly to an account service representative if and when they wish? Many custodians have invested heavily in Web-based, interactive tools allowing online enrollment and acceptance of contribution and distribution requests. Account holders can go to the website and pull up account information 24/7, including statements and transaction activities. For those clients who want to talk to a live person, you should look at the custodian’s service hours and how readily representatives can speak with account holders. In both instances, it is important that the account holder have the tools they need to manage their HSA on their own time schedule.

4. Record-keeping

How skilled are account holders at keeping track of their qualified or non-qualified medical expenses? Do employees and their employers make contributions into the HSA? In an HSA, the custodian is responsible for tracking all contributions and distributions. However, the individual HSA account holder is responsible for tracking all the details. Depending on how the HSA is used, it is important that account holders have tools to easily track account activity. Some custodians offer a digital record-keeping service that allows account holders to maintain all of these records in an electronic file. This becomes a very useful tool if someone has a lot of medical expenses to track.

5. Contributions and medical expense payment options

Can clients make their initial and subsequent HSA contributions by check or electronic transfer? How easy is it to transfer assets from another custodian? When it comes to paying bills, does the custodian provide checks or debit cards? Can clients move money from the HSA to another account to reimburse themselves for qualified medical expenses? In today’s world, consumers want options, and the convenience of moving money electronically.

6. Investments

Do your clients want options beyond cash? Do some of these clients want the money in the HSA today to use in retirement? As HSA balances continue to grow, account holders recognize that unused funds can present an investment opportunity. While some custodians offer a simple bank deposit account, many now offer a more robust investment platform. Some offer a limited number of mutual funds, while others offer mutual funds, stocks, bonds, and CDs. If the custodian offers an account that integrates the investment account with the deposit account, it is especially convenient for the account holder. The custodian must have the ability and the experience to provide custodial services for the investments it offers. For many agents, an HSA with investment options may be an important factor in deciding which HSA is right for their clients.

Above all, it is important to work with an HSA custodian that is responsive to agents, employers, employees, and individuals. As an agent, it is important for you to be able to rely on that custodian for good service – and this is something that account holders will thank you for.

Reggie Karas is the senior vice president of the alternative solutions group at Millennium Trust Company. She can be reached at rkaras@mtrustcompany.com or 630-368-5674.