An in-depth evaluation of 11 health savings account providers finds signs of industry progress, though fees and transparency remain hurdles.
Overall, Morningstar’s fourth annual study of HSAs finds that HSA providers improved in quality over the last year, with a number of plans cutting fees, enhancing the design of their investment menus and lowering investment thresholds.
But there’s room for improvement, according to the firm, as fees generally remain high and many providers require participants to maintain a minimum checking account balance before they can invest. Transparency also remains a challenge, as investors have limited resources to help them navigate the young and frequently changing HSA landscape.
Morningstar evaluates the providers’ success from two different use cases: as an investment account to save for future medical expenses and as a spending account to cover current medical costs. New to this year’s study is tracking total assets for 14 of the largest HSAs available to employers and individuals, including asset growth trends and changes in market share.
“There's a wide divergence in the quality of HSAs available to individuals, though providers have continued to improve their offerings by cutting fees and streamlining their investment menus,” says Leo Acheson, director of multi-asset ratings at Morningstar. “As HSAs continue to mature and evolve, it’s important that providers promote greater fee transparency, maintain strong investment line-ups, and simplify and improve plan features,” he further emphasizes.
Spenders and Investors
Fidelity and Lively were reported to have the best HSAs for spenders, as both waive maintenance and additional fees. Fidelity also offers the best HSA for investors thanks to low fees when compared to alternative offerings and no investment threshold, the report notes.
Additionally, Bank of America, The HSA Authority and HealthEquity offer compelling HSAs for investors. Fidelity, The HSA Authority, and HealthEquity earn recommendations for use as both spending accounts and investment accounts.
Most providers have continued to lower fees, but fees continue to vary widely among HSA providers, the study notes. For example, HealthEquity and HealthSavings removed and reduced maintenance fees, respectively. Across the 11 investment providers Morningstar evaluated, the cheapest passive 60/40 portfolio fee ranged from 0.02% to 0.68% per year.
Most of the HSA investment providers feature strong fund lineups, according to the report. Of the HSA investment options that Morningstar analysts cover, more than 80% earned Morningstar Analyst Ratings of Gold, Silver or Bronze, suggesting high-quality fund lineups overall. Bend, HealthEquity, and Lively held entirely “medalist-populated menus,” the study further notes.
Industry Growth
Despite market turmoil triggered by the pandemic, HSAs posted solid growth rates in the first half of 2020. Citing data by Devenir, the study notes that total HSA assets grew about 11% in the year-to-date through June 2020, bringing total industry assets to approximately $73.5 billion. Moreover, total HSA assets have about doubled since the end of 2016, when assets stood at $37 billion.
The four largest HSA providers—Fidelity, Optum, HealthEquity and HSA Bank—accounted for 56% of industry assets as of June 2020, and grew by about 12% during this period.
Morningstar notes that Fidelity has quickly become a major player, growing HSA assets by $2.2 billion in the first half of 2020, roughly matching the combined asset growth of the three other largest HSA providers. Fidelity’s market share jumped to roughly 10.5% as of midyear 2020 from 4.5% at the end of 2016. Optum remains the largest HSA, though its market share shrank to about 17% from 21% over that same period.
The 11 companies reviewed in the report include:
- Bank of America
- Bend
- Fidelity
- Fifth Third
- Further
- HealthEquity
- HealthSavings
- HSA Bank (Morningstar’s HSA plan provider)
- Lively
- Optum
- The HSA Authority
