HSA Assets Continue to Show Solid Growth as the Space Matures

Morningstar’s 7th annual landscape study on health savings accounts (HSAs) available to individuals shows continued industry improvement, even though persistent issues with transparency and fees remain.  

The study evaluated 10 of the top HSA providers on two different use cases[JI1]: (1) as investment accounts to save for future medical expenses and (2) as spending accounts to cover current medical costs.[1]

Overall, the study found that HSA features have improved in the past year with several plans cutting fees and offering higher quality investment menus. However, the industry is still developing and falls short on several issues, including transparency, ease of use and costs. 

Not surprisingly, the increasing adoption of high-deductible health plans (HDHPs) and the growth of HSA assets have gone together, as one must have an HDHP to contribute to an HSA. Through mid-year 2023, total assets in HSAs reached roughly $116 billion—a 21-fold increase since 2006. Meanwhile, the percentage of workers who are covered by employer-sponsored medical insurance and have chosen an HDHP grew from roughly 7% in 2006 to 32% by the end of 2022. HSA assets over the same period rose from close to $5 billion to more than $100 billion.

“Despite market volatility over the past year, investors in HSAs showed resiliency and continued to put money into their accounts. Assets have climbed since our study last year as HSA offerings continue to improve—a reflection of the industry maturing," said Greg Carlson, lead author of the study and senior manager research analyst. "Even so, there are several ways for HSA providers to progress,” he adds.

Room for Improvement  

According to the study, the process of investigating account details, signing up for one, and funding it remains complicated. In addition, some of the top providers still charge maintenance and/or investment fees and require a minimum account balance before participants can invest. 

What’s more, while interest rates have risen substantially over the past year, most HSA providers continue to pay modest rates, signifying an area of improvement for the industry, Morningstar notes. For average spending account balances, only Fidelity pays an interest rate that significantly exceeds the average national FDIC-insured savings account rate of 0.46%.

One positive is that providers' investment menus continue to improve. Among the 10 providers in the study, nearly all (96%) of the mutual funds and ETFs offered earn a Morningstar Medalist Rating of Bronze or better, up from 88% a year ago. This year, Fidelity remained as the only provider to earn a high overall assessment for both its investing account and spending account.

And while HSAs offer so-called triple tax benefits, many participants, unfortunately, don't or aren't able to take advantage of the investing feature of HSAs. According to Morningstar surveys, a median 18% of participants are using their HSA as an investment account, while an average of 71% of the clients of the surveyed providers use their accounts for spending. 

This may be due to the minimum account balances that most providers require before participants can invest, according to the study. Fidelity, Lively, and Saturna each earn a high assessment for not requiring an investment threshold. Associated Bank, HealthEquity, and Optum earn an above average for their $500 minimums, while Bank of America, First American Bank, HSA Bank, and UMB each require a $1,000 balance and thus earn an average ranking, the study notes.  

And with annual healthcare spending in the United States averaging more than $12,900 per person as of the end of 2021, many participants likely cannot invest because of their current need to spend HSA funds on healthcare goods and services, the study further observes. 

Meanwhile, HealthEquity ($22.3 billion in assets) surpassed Optum ($20.6 billion) as the largest HSA provider in 2021 and continues to lead. Fidelity has gained ground on both in the past 12 months with $19.8 billion in total assets.

The 10 companies reviewed in the report include: 

• Associated Bank
• Bank of America 
• Fidelity
• First American Bank 
• HealthEquity
• HSA Bank (Morningstar’s HSA plan provider)
• Lively 
• Optum
• Saturna
• UMB 

To read the HSA Landscape Report, which includes assessments for the 10 providers and methodology, click here. 

Footnote

[1] Note that Morningstar does not assess HSAs offered by employers, as details can vary depending on relationships and headcount. Just saying uses would probably suffice.