Morningstar is out with its annual assessment of the most prominent Health Savings Accounts (HSAs) available to individuals.
Morningstar evaluated 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, Morningstar tracked total assets for 14 of the largest and most prominent Health Savings Accounts available to employers and individuals, highlighting asset growth trends and changes in market share among these providers.
Overall, the study found 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.
However, there’s room for improvement, 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 hurdle, as investors have limited resources to help them navigate the young and frequently changing HSA landscape.
“Despite market volatility earlier this year, investors continued to place money into their HSA accounts,” Leo Acheson, director of multi-asset ratings at Morningstar, said in a statement. “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.”
It found that Fidelity continues to offer the most attractive HSA for both spenders and investors, and noted that 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.”
Highlights from the study include:
- Fidelity and Lively have the best HSAs for spenders, as both waive maintenance and additional fees. Fidelity also offers the best HSA for investors thanks to very low fees when compared to alternative offerings and no investment threshold. 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. For example, HealthEquity and HealthSavings removed and reduced maintenance fees, respectively. However, fees continue to vary widely among HSA providers. 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 boast strong fund lineups. Of the HSA investment options that Morningstar manager-research analysts cover, more than 80% earned Morningstar Analyst Ratings of Gold, Silver, or Bronze, pointing to high-quality fund lineups overall. Bend, HealthEquity, and Lively held entirely medalist-populated menus.
- The four largest HSA providers – Fidelity, Optum, HealthEquity and HSA Bank – accounted for 56% of industry assets as of June 2020. Fidelity has quickly become a major player, growing HSA assets by $2.2 billion in the first half of 2020, which is nearly as much as the asset growth of the next three largest HSA providers combined.
- Despite market volatility, total HSA assets grew about 11% in the year-to-date through June 2020, bringing total industry assets to around $73.5 billion, according to Devenir. Total HSA assets have about doubled since the end of 2016, when assets stood at $37 billion.
Overall assessment for each HSA provider:
| HSA Provider | Overall Assessment as Investing Account | Overall Assessment as Spending Account |
| Bank of America | Above Average | Below Average |
| Bend | Average | Average |
| Fidelity | High | High |
| Fifth Third | Average | Average |
| Further | Average | Below Average |
| HealthEquity | Above Average | High |
| HealthSavings | Average | Below Average |
| HSA Bank* | Below Average | Average |
| Lively | Average | High |
| Optum | Below Average | Average |
| The HSA Authority | Above Average | High |
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
