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In Practice April 12, 2024
Evaluating HSA Providers
HSAs are on the rise, but advisers and plan sponsors must take care when selecting vendors.
Reported by Paul Mulholland
Retirement and health experts encourage the use of health savings account, but also warn that not all HSA providers are the same when it comes to fee structures and investment options.
Investment menu options in HSAs can be very rigid because they are determined by the vendors providing the HSAs, Jason Chepenik, a senior vice president at OneDigital Retirement and Wealth, said Thursday at the 2024 HSA Conference held by PLANSPONSOR, a sister publication of PLANADVISER.
“You don’t get to choose the investments, you pick your provider,” he said.
John Ludwig, a financial adviser with LHD Retirement, cautioned that allowing participants to select their own HSA provider could enable participants to seek different investment options, but it would dramatically reduce the operational efficiency for the employer. This is because the employer would have to coordinate with multiple HSA providers.
Chepenik added that permitting employees to use their own provider will not only hurt efficiency but might deter many from opening an HSA because of the added complication. “Only the most sophisticated will use it,” Chepenik said, because they will know how to chase lower fees and broader investment options, and everyone else will just get frustrated.’
On fees, both Chepenik and Ludwig agreed that HSA administrative fees are “competitive,” and like retirement plans, decrease proportionally as the total amount of savings increases. As such, many HSAs feature account minimums before cash can be invested, but both experts say there is no “clawback” mechanism if the balance goes below that minimum, usually $1,000, from qualified health payments or a decline in investment value.
The key obstacles to HSA participation are “analysis paralysis,” and portability, according to Chepenik and Ludwig. Ludwig says that when an employee leaves a company, many leave their money in an old HSA or liquidate the assets because their new employer is not able to port it into their system.
Chepenik added that employers “have a responsibility to help employees make good decisions,” and to “take accountability for the things you put in front of your employees,” so that they understand how an HSA works and what its benefits are, such as tax-privileged saving for health expenses and eventual conversion into retirement savings.