The right HSA provider
Selecting the right HSA provider can be a challenge for employers. Service, features and cost are all factors to evaluate. In this article, we discuss some of the ways HSA providers make money, so you have a better idea of how to determine cost and value for your employees.
Many HSA providers charge a monthly administration fee to accountholders and employers can sometimes opt to pay that fee on behalf of their employees. When the employer pays the fee, they usually receive a monthly invoice. Otherwise, these fees are deducted from the HSA balance and disclosed on the accountholder’s monthly statement.
Administration fees are only one source of revenue and vary by provider based on many factors, including other revenue sources. For example, financial institutions may offer HSAs without an administration fee based on potential custodial revenue, interchange fees or investment-related fees (all of which will be discussed later in this article).
This is one of the more difficult costs to evaluate because of the complex nature of investments and how the fees are presented to accountholders. Investment fees can vary based on the specific fund or category of the investment. HSA providers may charge additional fees for access to the platform or other features associated with investing. Some HSA providers offer proprietary funds that provide them additional revenue.
Because of the complexity of investment fees, HealthEquity charges a single transparent fee of 0.40% of invested assets annually for all funds.1 A recent report by Morningstar showed HealthEquity to have the lowest average underlying fund expense ratios for all investment classes.2
Transaction fees can vary significantly from provider-to-provider. These include things like returned deposit fees, ATM fees, account closure fees and more. Many banks or other financial institutions that do not charge administration fees, rely on transaction fees as an important source of revenue.
Custodial revenue is another source of income for many HSA providers. Basically, this is the interest that HSA providers earn on the deposits held on behalf of their accountholders. This is a common revenue source for many financial institutions and custodians.
Your HSA provider can also earn revenue each time an accountholder uses the debit card associated with their account, if applicable. This is based on interchange fees which are charged to the merchant. These fees tend to be around 3% of the total charged, but the HSA provider only nets a portion while the card brand and payment processor also receive part of this fee.
Not all sources of revenue create a direct cost to accountholders, and these costs should be evaluated together with the services and features offered when choosing an HSA provider. Understanding how to interpret these fees better enables employers to make informed decisions when determining their benefit offering.
1Mutual Funds have operating expense ratios, which are disclosed in each Fund’s Prospectus. Expense ratios are fees charged by the mutual fund and are typically not included in investment administration fees. Before making any investment, review the fund’s prospectus.
2Morningstar, Inc. Data as of 6/27/17 Full report available at: http://corporate1.morningstar.com/ResearchLibrary/article/813893/2017-health-savings-account-landscape/
3Forbes, full article