HSAs: What About the Fees?

Health savings account fees have the potential to eat away at a tool that's meant to help achieve a lot in healthcare. As more employers expect employees to fund first-dollar coverage of their health needs, little attention has been paid to this detail.

When I started covering healthcare 14 years ago, the best piece of advice I ever got was "follow the money." Money motivates people, actions, and events. But with money comes math. When you're following the money, sometimes it's necessary to break out the calculator, of course, which can be helpful in discerning why a certain hospital or health system is taking the action it is—motivation can be found deep in a balance sheet, bond offering or fee calculation.

This advice and experience came in handy when I was reviewing the statement for my health savings account, in which a bank holds the money that I and my employer contribute. The bank takes a $2.50 per month fee for essentially managing an FDIC-insured savings account with an accompanying debit card. Don't get me wrong. I appreciate that my company offers benefits. It's one of the reasons I like working here. And I chose the high-deductible option with HSA over another option. But critically, I didn't get to choose the account manager, as I would with a savings or checking account. I didn't shop for that service. My personal bank doesn't manage it.

The ultimate irony is that while I'm expected to shop around to find the economical choice when spending those dollars on healthcare services, I can't shop around for my HSA. And if $2.50 a month sounds reasonable, it isn't. These fees are substantial.

That $2.50 a month might not sound like much, but that's just for maintenance of the cash account. If you somehow manage, over time, to accumulate enough in your HSA to think about investing that money in many of the vehicles your HSA administrator offers, $2.50 a month is just the beginning. If you invest in mutual funds after accumulating the required $2,000 cash floor in the account, you're subject to management fees and other fund fees that can run between 1% and 2% per year. Again, doesn't sound like much, but it can add up to a lot over time, especially if, like your 401(k), you accumulate a significant amount in these accounts over time.

Speaking of 401(k)s, fees in that industry have already caused controversy. So much so that the Labor Department instituted new rules on fee disclosures for 401(k) participants beginning in 2012, and the Supreme Court seems interested in further weighing in. Whether the new disclosure rules have been effective in helping plan participants realize how much of their money goes to management of their investments is debatable—many say they read like a dense prospectus more than a simple fee disclosure, but it's a start.

Since 401(k) fees are ubiquitous, and HSA accounts are less so, the attempt to reform them has been embarrassing to employers, but even more so for fund managers and 401(k) managers. They proved that for many, 401(k) fees were a rip-off. And not only were they a rip-off, they were cleverly hidden in the fine print, at least until the new disclosure rules went into effect.

Back to HSAs. My fees are clearly labeled in my statement, but considering the small amounts most people have in these accounts, $2.50 a month is a relatively huge percentage of their holdings.

Say I average $500 in my HSA for the year. They're going to charge me $2.50x12=$30 for the year. That amounts to 6% annually in fees for taking no risk. Even if I had the required $2,000 cash minimum for investing in further products beyond a savings account, it's 1.5% a year just to hold my money for me. Never mind that they get to hold and use my money while I'm waiting to incur a healthcare bill. Multiply that by the thousands of HSAs that are being established nationwide—enrollment reached 15.5 million last year, according to the trade group America's Health Insurance Plans—and you can see it's a very lucrative business line. It's a pretty sweet deal for the bankers, but not the account holders. If anyone ever offers you 6% a year with no risk, you should either jump at the chance or suspect you're looking at the next Bernie Madoff. It'll never happen to you, but it does to the banks.

So what's the message to hospital leadership about these accounts? Why should you care?

First of all, you're likely one of your city's or region's largest employers. You may offer HSAs and high-deductible insurance plans to your employees already. And you're in the best position to see the possible long-term effect from a high fee and money management structure that eats significantly into your employees' and your customers' ability to pay for healthcare services over time.

Admittedly, it's not high among your critical decisions in adapting to a changing business model in healthcare, but such concerns are part of the transition and their importance will only grow as consumer-driven healthcare emerges. As leaders who experience healthcare transactions, both as a provider of benefits and as a service provider, you're uniquely positioned to make a difference in how this increasingly important source of payment for healthcare is regulated.

You should do your part to make sure that your organization is being as transparent as possible with the employees you ask to use these accounts to pay for first-dollar coverage of their healthcare. And even if you are being transparent, make sure your HR folks are shopping around. These fees are being charged because it's what the early market will bear.

As HSA administration becomes more mainstream, the hope is that lower-cost options will hit the marketplace. But don't expect it to be quick. 401(k) fees have stayed high for many years, and with employees still not able to understand disclosures well, they'll continue to drain an outsized portion of money intended to fund retirement for the majority of Americans for years to come. As with 401(k), employers make the decision on an HSA administrator.

Increasingly, your employees will be watching.