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How Does Your Health Savings Account Stack Up?

We evaluated 10 plans, and only one looks attractive for use as both a spending and investing vehicle.

Leo Acheson, 06/27/2017

We released a report that evaluates HSA plans through two separate lenses: as a spending vehicle to cover current medical costs, and as an investment vehicle to save for future medical expenses.

Health Savings Accounts are growing rapidly, but the general public is just getting up to speed on how they work. HSAs, which are offered in conjunction with high-deductible health plans, are tax-sheltered accounts for individuals to save for medical expenses that aren't covered by the HDHP. Despite the increased interest in HSAs, they remain a very under-researched corner of the market. Investors have few resources available to navigate the hundreds of plan providers that exist. The lack of resources has likely contributed to these plans' underutilization as savings vehicles despite their valuable tax benefits.

An HSA is triple tax-advantaged: Pretax dollars go into the HSA; the money grows on a tax-free basis; and withdrawals are tax-free as long as the money is used to cover qualified healthcare expenditures. In addition, HSAs are more flexible than many think and can be used in two different ways. Most frequently, an HSA is a place to set aside dollars to cover immediate healthcare costs. But the HSA can also serve as a longer-term investment vehicle. Rather than using the HSA to pay for current healthcare costs, invest it. Let that money grow year over year. Then tap into the HSA during retirement to cover in-retirement healthcare costs.

We evaluated HSA plans through two separate lenses: as a spending vehicle to cover current medical costs, and as an investment vehicle to save for future medical expenses.

When evaluating HSAs as spending vehicles, we focused primarily on the maintenance fees charged by each plan. We also considered, to a lesser degree, the interest rates offered by their checking accounts. Interest earned on HSA deposits is rather small because of the current low-interest-rate environment. If yields rise, the interest offered may become a more important consideration.

From an investment-vehicle standpoint, we focused on HSAs' menu of mutual funds. We considered four components when reviewing plans' investment lineups: menu design, quality of investments, price, and performance. The first three components carry the most importance since we don't believe that past performance is predictive of future results.

Exhibit 1 outlines the components and the criteria we evaluated when determining assessments on the spending-account and investment-account sides. It also includes what we consider to be best practices, as well as the importance of each component in determining our assessments.

is a fund analyst on the fund-of-funds research team for Morningstar.

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