Henry Ford famously said that people could buy his Model T automobile in any color “as long as it is black.” Fortunately, providers of health savings accounts (HSAs) have not taken that one-size-fits-all approach. It is unclear, however, whether employers understand that there are important differentiators between HSA providers.
Employers that offer 401ks and similar corporate-sponsored retirement plans know well the level of due diligence that goes into making the necessary decisions to achieve the best results. Meeting after meeting is held to select the adviser of choice, who in turn conducts meeting after meeting to find the recordkeeper of choice. And then more meetings to stay on top of the decisions made in previous meetings. But have employers exercised a similar level of due diligence on their choice of HSA provider?
So, what are the differentiators that employers should consider when choosing an HSA provider?
Cost is an obvious differentiator. There are several fees associated with health savings accounts, but the monthly account maintenance fee, which typically ranges from $1.75 to $4.00 per month, is one of the fees most often considered by employers and their employees.
An employer is not obligated to pay the monthly administrative fee on an employee’s HSA, but according to a recent report by the Plan Sponsor Council of America, over 56 percent of employers do in fact pay this fee on behalf of their employees.
Individuals sometimes make poor long-term decisions based on relatively small or insignificant short-term factors—such as a monthly fee. Thus, it is wise for an employer to take the issue of a monthly account-fee out of their employee’s calculus when deciding upon what type health plan to choose.
Not all providers offer the opportunity to invest HSA assets. The triple-tax-free characteristic of the HSA makes it a powerful tool to save for one of the largest expenses in retirement. Therefore, the ability to invest HSA assets is a critical differentiator between providers.
Many providers that offer the ability to invest HSA assets charge an investment fee which varies in cost, but averages approximately $36 per year. Some providers will waive the investment fee for each month that the cash balance in individual’s account meets a specified minimum. Again, the minimum cash balance required to avoid the investment fee varies by provider, but is typically around $3,000.
There are many other fees for additional features, such as ATM withdrawals, point-of-service purchase fees (debit card swipe fees), checks, stopped payments and account closures. While these fees are more standardized between providers, a complete review of all fees associated with health savings accounts should be part of any employer’s due diligence efforts.