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Our Top HSA Pick: One Plan That Does It All

Leo Acheson, CFA
Christine Benz

Christine Benz: Hi, I am Christine Benz for Morningstar.com. As health savings account assets have grown, Morningstar has begun grading HSAs on their merits. Joining me to discuss the latest round of grades is Leo Acheson. He is director of multi-asset strategies and alternative strategies for Morningstar.

Leo, thank you so much for being here.

Leo Acheson: Of course. Thanks for having me.

Benz: Leo, you and the team took a look at HSAs from two vantage points; one as spending vehicle, so for people who want to use their health savings account as spend-as-they-go type vehicles and also as savings vehicles. You've got it all in the paper, the specific criteria that you use to judge these accounts on. But let's start with the spending vehicle, so for people who want to use their HSA as a short-term parking place. Let's talk about the HSA account that came out on top.

Acheson: There was one that really stood out, and that was The HSA Authority. It was the only plan that we looked at of the 10, that does not charge a maintenance fee. The maintenance fee is really the biggest consideration for HSA spenders, so that really makes it a clear winner in that space.

Benz: HSA Authority, if you are using it as a spend-as-you-go vehicle. How about for people who want to harness those great long-term tax benefits that come along with an HSA and use it to invest for the long term. Here again, HSA Authority looks pretty good, right?

Acheson: That's exactly right. Of the 10 points we looked at, The HSA Authority we think is the strongest for use as an investment vehicle to save for the long term. Couple of other plans were also attractive though not quite as attractive as The HSA Authority, partially due to the fees that they charge. Bank of America and Further are also good options. One thing I would note is that Further really stands out if you want to buy passive exposure, but for active strategies it's not as good of a deal.

Benz: When you are evaluating the HSAs as long-term investment vehicles, you are looking at cost of course, you are looking at investment options. What other kinds of things are you and the team looking at?

Acheson: Costs are very important consideration. We look at the quality of the underlying funds. We're able to aggregate our fund ratings at each of these plans and see how they stack up versus one another. We also look at the menu design--does the plan offer strategies in all the core asset classes and also limit overlap among some of those options. Finally, we look at the investment thresholds which essentially require investors to keep a certain amount in a checking account, before they can invest, which could create an opportunity cost. That was another factor we looked at.

Benz: It's important to note that when you and the team evaluated the HSAs, you evaluated them on a standalone basis, so for individual investors who are out shopping for HSAs, you didn't and perhaps couldn't take into account any sweeteners that employers are adding to get their employees to contribute to the HSA that's offered in house.

Acheson: That's right. The HSA offered in-house vary from one employer to the next based on multiple factors like number of employees or insurance provider. Of course seeing you might take into consideration a match that or contribution that your firm might provide. We focus on these evaluations from an individual perspective.

Benz: You say it's important for people who are offered that employer-provided HSA to really do their homework on any particularities of their own plan and the HSA offering within it?

Acheson: Exactly. I would recommend that you request information such as what are the fees, what are the interest rates, what are the investment options, and then use that information, compare it to, for instance what we have in this paper to see if you might be able to get a better deal by going outside of your employer-offered plan.

Benz: People might say well, that's awfully cumbersome to go outside of my employer-provided plan. But you say that employee should think about at least participating in the employer provided plan through payroll deductions, and then potentially do transfers. Is that how it would work?

Acheson: Exactly. Yeah, that would be the best option, to use that and then periodically transfer it over, so then you'd have two HSA accounts side by side.

Benz: Leo, great research. Thank you so much for being here to discuss it with us.

Acheson: Of course. Great, talking with you.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.