Health savings accounts are growing rapidly thanks to trends in health benefit plans and the tax advantages they offer.
Yet, the HSA industry is opaque and provides investors scant resources to help them navigate the hundreds of products that exist, according to Morningstar’s third annual study assessing 11 brand-name HSAs available to individuals.
The report, released this week, evaluated the providers’ success in responding to two different ways in which HSAs are used: as an investment account to save for future medical expenses and as a spending account to cover current medical costs.
The analysis showed that the industry has made progress over the past year, but providers still have room to lower fees, simplify investment menus and account rules, and boost transparency to make it easier to compare providers.
“As high-deductible health plans have surged in popularity over the last decade, so have HSAs, with total assets surpassing $60 billion as of mid-2019,” Leo Acheson, associate director of multi-asset and alternative strategies at Morningstar, said in a statement.
“Despite the industry’s growth, it can be hard for investors to choose an HSA given the lack of transparency and the industry’s frequently changing landscape.”
Acheson said the onus was on providers to re-examine fees, bolster investment lineups and simplify and improve plan features. “The industry got a fresh reminder of that in the past year when Fidelity entered the market with its own HSA, emerging as a clear winner for both spenders and investors.”
Research analysts evaluated HSA providers available to individuals, as opposed to those offered through employers, where fees can vary based on a number of factors. They assigned positive, neutral and negative scores to various criteria, and aggregated those scores to reach an overall assessment for each provider as both an investing account and spending account.
Morningstar determined that Fidelity was the best all-around HSA provider for both spenders and investors on the strength of its minimal fees, strong investment options and first-dollar investing.
For HSA spenders, Lively was the second-best choice, given that it does not levy fees and offers reasonable interest rates. The HSA Authority and Bank of America were the next best picks for HSA investors, with each account boasting solid fund lineups and below-average fees.
Here is Morningstar’s overall assessment for each provider.
According to Morningstar, some of the top HSA providers, including the four mentioned above, have lowered or eliminated maintenance and investment fees. In addition, the quality of investments across HSA providers remains impressive and has improved, it said.
At each of the 10 investment providers Morningstar evaluated, at least 80% of the investment options to which it assigned Morningstar Analyst Ratings earned Medalist ratings of Gold, Silver or Bronze.
Each provider in the study exhibited at least one shortcoming. None earned positive marks across the board as an investing account, and only Fidelity earned positive marks on all measures as a spending account.
Fees vary drastically among HSA providers and remain elevated, Morningstar found. Across the 10 investment providers, the average cost for the cheapest passive 60/40 portfolio ranged from 0.02% to 0.69% per year.
Morningstar upgraded HealthEquity’s investing account assessment to neutral from negative because it waives maintenance fees earlier than most competitors that charge them. It also trimmed expenses during the past year.
At the same, it downgraded UMB Bank’s and Optum’s investing account assessments to negative because their fees looked increasingly unattractive in comparison with their expense-cutting competitors.
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