Only5 HSA providers evaluated by Morningstar disclose all relevantinformation, like maintenance fees and interest rates, on theirwebsites. (Photo: Shutterstock)

The $60 billion-plus Health Savings Account market is showing signsof evolution, but is still hampered by offerings that are commonlyexpensive and opaque, according toMorningstar's 2019 Health Savings Account Landscape report.

"The industry is still pretty young," said Leo Acheson,associate director, multi-asset and alternative strategies, andlead author of Morningstar's report.

"There is a big disparity in how much you pay, and room forimprovement in other areas," he said.

Morningstar looked at the 10 biggest providers in the retailmarket. Total fees ranged from 2 basis points (Fidelity) to 69basis points (Optum). The average fee was 46 basis points.

Total fees include underlying fund fees, investment fees, andmaintenance fees. Fidelity is the only provider that does notcharge investment or maintenance fees.

"It's essentially free at 2 basis points," Acheson said ofFidelity's HSA. "You are only paying for the underlying fundfee."

Most HSA assets are invested in spending accounts that hold contributions inlow yielding cash instruments. Of the $60 billion HSA market, about$48 billion is invested in spending accounts. Fidelity offers thehighest interest rate on savings at 1.07 percent.

By contrast, HSA Authority offers a 0.01 percent yield, whichearns $0.20 annually on a $2,000 balance, the average amongspending accounts.

About those maintenance, investment fees

While the report describes HSA Authority's yield as "paltry," itdoes note that the fund does not charge maintenance fees.

Maintenance fees cover the cost of administering the accounts.Along with Fidelity and HSA Authority, Lively also does not chargea maintenance fee.

Health Savings Administration charges an annual maintenance feeof $45. Fifth Third charges $42 initially, but it drops as accountsgrow, and ultimately hits zero at $4,500. Bank of America andFurther charge maintenance fees of $30 and $36.

Eight providers also charge annual investment fees—Fidelity andBank of America are the only that do not. HSA Authority and UMBBank charge an annual investment fee of $36.

"Where they are going wrong is with maintenance and investmentfees," Acheson said. "It's still a maturing industry. Some arestill just trying to figure out how to manage it all."

To underscore that point, Acheson noted that the provider withthe largest asset base in the retail market—Optum reported about$3.4 billion in retail HSAs–also costs the most, at 69 basis pointsin total fees for a 60/40 portfolio built on passiveinvestments.

"You would think there would be economies of scale, but that'snot the case," said Acheson.

HSA savers can also be burdened by other fees–debit cardreplacement, excess contributions, and paper statements areexamples. Fidelity and Lively don't charge additional fees. Fivecharge between two and seven additional fees. HSA Authority doesnot have a maintenance fee, but charges 18 additional fees.

"For the most part, additional fees are avoidable," saidAcheson. "It's an area for improvement."

Solid investments, but sometimes too many

Generally, all of the providers have selected sound investmentoptions.

And while menus are better designed than in previous years,there is room for improvement on that front, said Acheson.

At least 80 percent of investment options at eight of the 10providers hold a medal ranking with Morningstar. And none of theproviders offer a fund with a negative analyst rating.

Fifth Third's HSA has the highest split of actively managedfunds, at 75 percent of its menu. Health Equity offers the fewestactive funds, at two, and offers strictly Vanguard funds.

HealthSavings Administrators offers 33 funds in its menu, themost among the 10 providers. Health Equity offers 18, theleast.

"We'd like to see that number trend down for simplification,"said Acheson. "The optimal range is 12 to 24, but you could getaway with six."

Morningstar viewed providers' menus in a negative light whenthere were multiple offerings of the same investment style, orsector-specific investments, such as real estate or health carefunds.

Transparency remains subpar

Only five providers evaluated by Morningstar disclose allrelevant information, like maintenance fees and interest rates, ontheir websites.

"It's not always straightforward. On some websites, you look forbasic information like a maintenance fee and you can't find it.That makes it hard for someone to compare one fund to another,"said Acheson.

Five providers fail to disclose interest rates on theirwebsites; three failed to disclose maintenance fees; two failed todisclose investment fees; two failed to disclose additional fees;and two providers failed to disclose information on investmentmenus.

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