While admitting the health savings account (HSA) industry has bettered its offerings over the past 15 years, a new study from Morningstar finds several of the largest participants still have ample room for improvement.
Fidelity earned the highest marks in Morningstar’s sixth annual landscape study on HSAs available to individuals, and was the only provider to receive a “High” overall Investment Account assessment and the sole provider with a “High” overall Spending Account assessment.
The study evaluated 10 of the most prominent HSA providers’ offerings on two different use cases: as investment accounts to save for future medical expenses and as spending accounts to cover current medical costs. New this year, the study also provides best practices for individual participants to take full advantage of HSA investment features and flexible spending policies, and advocates for improvements to the onboarding process to help facilitate broader adoption of HSAs.
“HSAs are valuable tools for investors when used properly, but the industry is still young and maturing. Its opaque structure needs improvement,” said Tom Nations, lead author of the study and associate director of manager research. “Despite Morningstar’s advocacy, there is considerable variance in the quality of HSAs available to individuals as some providers still have high costs and confusing features. As the space continues to grow, we’re looking to see more widespread improvement, namely among account investment menus, fees, and fund quality.”
The study found that the four largest HSA providers—HealthEquity, Optum, Fidelity, and HSA Bank—account for nearly two-thirds of the total HSA market with roughly $64 billion in assets combined. HealthEquity overtook Optum at year-end 2021 as the industry’s largest provider and widened its lead in 2022’s first half.
HealthEquity also earned “Above Average” assessments in the study for both overall Investment Account assessment and overall Spending Account assessment while Optum received “Average” assessments in both categories.
Lively and The HSA Authority were the only other HSA providers in the study to earn “Above Average” assessments in both categories. HSA Bank received an Average assessment for Investment Accounts and Above Average for Spending Account assessment.
More key findings from the study:
- Assets in HSAs have grown at a 31% annualized growth rate over the past 15 years.
- Just 9% of HSA accounts reviewed have investment assets, according to Morningstar surveys, signifying HSA users are not taking full advantage of the accounts’ investment features or triple tax benefit. When used optimally, HSAs have more tax benefits than 401(k)s, 529 education-savings plans, and traditional and Roth IRAs.
- Generally, HSA providers have improved their offerings since Morningstar’s first report in 2017; however, fee schedules remain high and vary across providers, most require individuals to meet spending account minimums before they can invest, and fund lineups still offer redundant and complicated options that can be hard to use.
- As interest rates have risen in the past year, interest paid to HSA holders has become increasingly important to analyst evaluations. The best HSA providers pay interest rates that increase with market shifts, and so far, Fidelity is the only provider that offers higher interest rates than the average national savings account rate of 0.17%.
Click here to read the HSA Landscape Report, which includes complete assessments for the 10 providers and methodology. An article on Morningstar.com summarizing the report’s findings is available here.