Health Savings Accounts – A Survey of Options

In prior posts, we provided an overview of Health Savings Act signed into law by President Bush in 2004, laying out the details and mechanics of the plans relative to regular health insurance options and providing an economic comparison between the two. Our conclusion was that High Deductible Health Plans combined with Health Savings Accounts provide individuals and families a terrific way to both lower ongoing medical insurance costs and accumulate tax-free savings for future medical service needs.

In this post we take our analysis a step further, surveying the landscape of the budding Health Savings Plan account options available through a number of financial institutions. With over 1,100 banks, credit unions and brokerages offering plans, our survey isn’t exhaustive but our finding do point out the varying range of services and fees charged by HSA providers at large. We believe this can be of further economic benefit to those wishing to avail themselves of what we think will be a well-adopted and rapidly expanding health-care alternative.

The survey table can be found here.

Who are these guys anyways?

The first thing that struck us in looking at the various HSA account offerings is the plethora of startup firms dedicated solely to servicing this small, but growing, opportunity. Firms such as HSA Bank, 1^st HSA, Exante Bank, and Health Savings Administrators are all big online marketers with products that offer both savings and investment alternatives. The upside – convenience, as it’s easy to either enroll over the web or download an application. The downside – it’s impossible to know if any or all will be around in five years and, as first movers in the field they’re all looking to exploit the opportunity with fee structures that verge on embarrassing.

Fees, fees & more fees
So let’s talk about fees because the second thing that struck us in looking at HSA offerings is the wide range of fees that are currently being charged. In all, the prospective investor could be faced with possible setup fees, monthly maintenance fees, closing fees, check fees, and/or debit card fees – and that’s just for savings accounts. Add in investment management options, which can range from a select group of mutual funds to the more open platform of a linked discount brokerage account, and one may also incur mutual fund maintenance fees, as well as account minimum balance and transaction fees.

HSA-only opportunists all charge account setup fees and monthly service fees along with a variety of incidental fees.

Yet the good news is that fees are generally coming down as bigger financial institutions enter the game. Products from heavyweights BankAmerica and Wells Fargo, though limited in their investment options, charge only monthly service fees, albeit somewhat high at $3.75 to $5.

Starting Out – Go for Low Cost
Let’s face it, at their core Health Savings Accounts are meant to be backstops for our medical spending needs. As such, the first few years of having an HSA account should be dedicated to funding the account, not investing the balances. In this case you’re probably best off with a low-cost option, and among the lowest cost are those offered through local community credit unions. (We surveyed offerings from Patelco and Stanford Federal Credit Union in the San Francisco Bay area, but offerings in your area are probably comparable.) You’ll have to become a member and may have to open a traditional savings account to gain access to a chosen credit union’s HSA products, but the generous interest rates earned on the account coupled with the monthly maintenance fee savings likely more than justify the trouble.

For those wishing to forego the hassle of opening up a new banking relationship, look to your current financial institution’s offerings. Calculate the “all-in” annual cost of the offering and see how it stacks up for you. Keep in mind that for major bank’s products surveyed by us, you’ll need over $2,000 in BankAmerica’s HSA product and $900 in Wells Fargo’s before you actually earn any money, taking current interest rates paid and monthly maintenance fees into account.

Building the Nest Egg – When and How to Invest
In our opinion, one should have at least two years of possible out-of-pocket medical costs squirreled away in an HSA account before contemplating investing the balance. For individuals that likely amounts to balances of between $6,000 and $10,000 and for families its likely double. Again, your first priority is to ensure the money is there, if and when you need it.

Even with two years saved, we’d advise HSA participants invest only using lower-risk strategies, plenty of diversification stock sectors and a healthy portion (at least 40%) of income producing investments such as bonds and preferred stocks.