Health savings accounts have grown at a furious pace, with total assets invested in HSAs rising by a factor of 21 since 2006 to roughly $116 billion, according to a report released Wednesday by Morningstar Inc.

But although the industry has matured over the years, analysts from the firm say there is room for improvement in areas that include user education, transparency, ease of use and cost. Beyond those adviser- and provider-led initiatives, the firm also noted the potential for legislation to allow HSAs as an option to receive automatic income deferral.

Morningstar evaluated 10 of the largest HSA providers for individuals on two different use cases: as spending accounts to cover current medical costs and as investment accounts to save for the long term.

In a ranking of the providers by Morningstar, seven out of the 10 received “above average” or “high” for overall assessment as a spending account, with Associated Bank ranking as “average,” and Bank of America and Saturna ranking “below average.”

For using the HSA as an investing account, only four firms ranked as “high” or “above average,” with the other six coming in as “average.”

Only two providers earned assessments of either “high” or “above average” in both cases: Fidelity (“high” in both) and HealthEquity (“above average” in both.

Morningstar did not assess HSAs offered by employers, as details can vary depending on relationships and headcount. Each of the 10 providers responded to Morningstar’s survey with detailed information.

Improving Use

According to Morningstar, HSA providers and regulators should do more to encourage HSA participants to use their accounts as long-term investment vehicles.

“Advisers can address these issues by guiding clients to HSA plans that charge lower fees,” Greg Carlson, senior manager research analyst of equity strategies at Morningstar, says via email. “Advisers can also seek out plans that have better tools and educational materials and put up fewer hurdles to accessing HSAs’ full feature set, including investment options.”

One barrier to increased investing within HSAs is that participants are not always aware of the investment-account option, according to Morningstar. The firm’s report suggested that advisers can help providers o simplify the account-opening process and give participants more educational materials on how to use HSAs in coordination with retirement savings. Providers that offer better guidance and tools tend to have higher average investment account balances, according to the analysts.

“While HSAs have seen enhancements as the industry has matured, such as decreased fees and improved investment options, they still face challenges in terms of transparency, user-friendliness, and cost-effectiveness,” according to the report’s authors. “The process of exploring account details, enrolling in an HSA, and funding it remains intricate. Some leading providers still impose maintenance and investment fees, as well as requiring a minimum account balance before allowing participants to invest.”

In addition, according to Morningstar, many providers offer “meager” interest rates on account balances that fall below relatively high thresholds.

Long-Term Savings

While employers are allowed to automatically enroll employees in employer-sponsored retirement plans, the government has not ruled on whether they can do the same for HSAs. If HSAs were made part of automatic enrollment, the vehicles would see more use and, with that, potentially better services, Morningstar noted.

If the savings accounts grow more popular, especially if they become part of automatic deferrals, participants will need to consider factors that do not apply to retirement plan investment decisions, Morningstar’s analysts wrote. For example, because at least some HSA money may be needed to cover sudden medical expenses, it makes sense to avoid large allocations to aggressive investments.

Morningstar did find that participants using HSAs as investment vehicles endured market declines in 2022 well. Despite losses in both broad equity and bond indexes, “both the total and average assets in HSA investing accounts among the providers Morningstar surveyed rose from the end of 2021 to the end of 2022,” the firm wrote.

That same investment tracking has continued to grow in the first half of 2023.