A health savings account, or HSA, is exactly what the name implies: a financial account that can be used to save money for future medical expenses. These accounts, combined with a high-deductible health insurance plan, also offer certain income tax breaks that make them even more attractive.
But which health savings account offers the best deal?
The answer depends in part on how the account will be used, according to Liz Ryan, senior vice president of the health benefit services group at Wells Fargo in Minneapolis. Most people fund an HSA and then use the money to pay for recurring or occasional medical costs either immediately or over time. But some use an HSA to accumulate savings for anticipated medical costs far in the future.
“Are you going to use the account to pay for medical expenses in the current year or to set aside (money) to invest?” Ryan asks.
Either way, it’s a good idea to shop around for a health savings account. Banks, credit unions, insurance companies and other financial institutions, referred to as “administrators” or “custodians,” offer HSAs, and each has its own policies and fees.
Here are seven factors to consider:
Some HSA custodians are big banks that have a network of branches and automated teller machines, or ATMs, across the country. Others are smaller institutions or online banks that don’t have branches or ATMs, but interact with customers only via mail, a telephone call center or website. Customers who like to talk to a live person should find out what days and hours the branch or call center is open before they open an account.
Most HSAs offer checks or a debit card. Ryan is a fan of the latter because it can be used at the point of purchase or point of care to pay directly for medical products or services.
Some older health savings accounts require disbursement and reimbursement forms, which can be a hassle for consumers and cause delays in payment, according to Kirk Hoewisch, president of HSA Bank in Milwaukee.
“Some of our competitors — it’s easy to put money in and hard to take it out. They don’t offer checks or debit cards. It’s not as common as it used to be, but still exists,” he says.
Some HSAs have a monthly fee. Others have per-transaction charges. And still others have combinations of fees. Some charge a fee to open an account, obtain, replace or renew a debit card, transfer money from a savings account to an investment account and back again, and so on. Always ask for a complete schedule of fees and find out what is — and isn’t — included in a bundled fee.
Health savings accounts may also have so-called “behavioral fees,” which are triggered by circumstances such as an overdraft or an insufficient funds deposit. These fees are typical of other types of bank accounts as well.
Consumers should look for an HSA custodian that’s serious about security. Ryan suggests two clues: whether the institution’s website is secure and whether Social Security numbers are truncated on printed documents.
Health savings account administrators are required to provide paper or electronic account statements. HSA Bank, among others, also offers electronic check images though its website.
“We found that by offering Internet banking on the website,” Hoewisch says, “people can see their items at any time.”
Some HSAs are only savings accounts while others feature an investment option. Those who want to invest should consider the range and type of investments, fees and flexibility.
Wells Fargo, for instance, offers six or seven of its own mutual funds and allows customers to transfer money between savings and investments without charge.
HSA Bank gives customers access to 11,000 mutual funds and the ability to buy stocks through an agreement with TD AmeriTrade. The account is free. AmeriTrade charges $9.95 per trade.
“If you aren’t trading, it’s not costing you anything extra,” Hoewisch says.
Not that many people take advantage of the health savings account investment feature — if Wells Fargo’s experience holds true across the industry. Ryan says 87 percent of the HSA funds that Wells Fargo administers are in cash or money market funds.
“Very little of (the total) is invested in a mutual fund, and that’s because the balances are very small,” she says.
Savings accounts are insured, up to certain limits, by the Federal Deposit Insurance Corp., which protects savers from loss if a bank goes out of business. Investment accounts don’t have this protection.
7. Minimum balances
Health savings accounts typically don’t require a minimum balance, but some administrators will waive certain fees if the account has at least, say, $3,000 or $5,000. Be sure to ask whether the waiver is based on a minimum savings balance or a combination of a savings and investment balance.