Selecting an HSA Service Provider

Experts say providers should be able to educate participants about how the accounts work and their triple tax benefits.

During one of the virtual 2021 PLANSPONSOR HSA Conference panels, Greg Adams, a consultant with Fiducient Advisors, said there is a lot of growth potential ahead for health savings accounts (HSAs).

Keith Kotfica, senior vice president of partnerships at HealthEquity, agreed, saying, “What HSAs look like now are what 401(k)s looked like 25 years ago. Even through the COVID-19 pandemic, HSA adoption has continued to grow, with total accounts reaching 30.2 million in 2020, according to data from Devenir. The average account balance also continues to grow, reaching $3,428 at the end of 2020. However, half of all accounts contain less than $500, signaling the opportunity for organizations to provide more support. Ninety percent of folks with HSAs are using it as a spending vehicle, even though its benefits as a tax savings vehicle are off the charts.”

Kotfica also noted that while many HSA accounts are in money market funds, more HSA account holders are investing their money; today, $40.9 billion of HSA assets are invested, and assets grow 50% each year. “HSA account balances among those who invest are 6.5 times larger than those who are not invested,” he said. As of December 31, invested balances averaged $13,939, he said.

Kevin McKechnie, founder and executive director of the HSA Council at the American Bankers Association, said that when selecting an HSA vendor, an employer should look for a provider that allows funds to be automatically deposited into the HSA account through payroll.

McKechnie said the HSA provider should also be able to educate participants about the tremendous health care costs they will face in retirement, and he cited Fidelity Investment’s research pointing out that a 65-year-old couple retiring this year will spend more than $300,000 on health care.

Adams noted that HSAs are individual accounts for participants and are not subject to the Employee Retirement Income Security Act (ERISA), so “the responsibilities of 3(38) fiduciaries does not apply to sponsors. Therefore, [to keep the HSA not subject to ERISA] employers should not be picking the underlying investments in the HSA. If they want to scrutinize them, they can hire a third party to do that.”

Adams added that it is important that the investment menu addresses the needs of those employees who are going to be using the HSA as a spending account, as well as the minority who will be using it as a savings account. “Also make sure that there are plenty of resources and education for participants on the investments,” he said.

Kotfica said that unlike a 401(k) or other defined contribution (DC) plan, which people do not begin using until they retire, participants use HSA funds for immediate medical needs, so the HSA provider needs to have 24/7 customer support available.

“The most important factor is ease of use,” he said. “The customer service folks should also be able to teach HSA holders to be good consumers of health care and to guide them to lower-cost solutions. They will be eternally grateful if you help them save money.”

Adams said the HSA provider should also be able to educate participants about the triple tax savings of these accounts to encourage them to save money in the account for health care costs in retirement. “Employees should definitely be educated on how to use these accounts for the maximum benefit,” he said. “The proper education of consumers is the single greatest challenge we face with HSAs.”

From the employer’s perspective, plan sponsors should look for a provider that can handle data whether it comes from the payroll provider, the health plan, the benefits administrator or from the employer directly, Kotfica said.

Adams said it is also important for employers to look at the fees the HSA charges; if a participant loses their HSA debit card, is there a charge to get a new one? Is there an annual or monthly maintenance fee the HSA provider will charge participants?

Finally, Kotfica said sponsors should make sure the health care plan is properly linked to the HSA.