|While custodial accounts for Health Savings Accounts (HSAs) are becoming more and more user friendly, there is still a wide variance in the cost of these “Medical IRAs.” |
At the same time, depositors are becoming savvier about their accounts and there is an emerging backlash against the high fees being charged by some providers.
JoAnn Laing, President of Information Strategies, Inc., (ISI) directed a months-long study of depositor fees. ISI manages an information-only website serving the HSA marketplace that also lists almost 100 banks and institutions offering custodial accounts.
According to Laing, “individuals came to us and other media outlets complaining about the high fees. These fees include account set-up charges, maintenance fees, and per-transaction charges.”
“Given the low first year accumulations of depositors and the rapid ramp-up in second and third years that are expected, they do appear to be high,” Laing said. “However, there are custodians that are offering cost-effective accounts,” she added.
Based on its research, www.hsafinder.com found the average 12-month usage for an HSA account is four transactions a year with an average balance at the end of the first year of $840.
Without incorporating any offset of costs through interest or investments and using the given parameters below*, the study of 97 banks or other institutions showed the following ten as the most economical:
Using the same criteria, the following were the most expensive as of July 1.
* The hypothetical user has $410 in his/her account on January 1, 2005. By December 31, 2005, the balance is $840, with an average net addition (deposits less withdrawals) of $35.83.
A complete list of all surveyed banks is available here on HSAfinder.com. This free list is maintained by the banks and institutions themselves and is updated almost daily. There is no charge for listings or visitor referrals, which total thousands each week. Two-Part Program
HSAs are a two part program—a high deductible healthcare plan coupled with a tax-deferred savings or investment account. After slow growth in 2004, HSAs are soaring as more and more businesses are switching their corporate healthcare offerings and individuals are hopping on the bandwagon.
Monies for the custodial accounts are coming from the savings, up to 44%, in the health insurance premiums. With insurance premiums for HSAs tumbling, funds for placement in the custodial accounts are rising. Each week, ISI receives reports of up to three new banks and other institutions joining the gold rush for new deposits that are expected to total more than $1 billion by the end of the year. By 2010, this number could soar to $50+ billion, according to industry pundits.
Since these accounts are tax-free, they tend to build up as unused medical funds can be rolled over into succeeding years. Hence, these accounts are attractive to financial institutions.
Just like traditional banking services, HSA providers are offering holders services designed to make their lives easier. Accessing Online Rising
Most providers allow customers to access and even manage their accounts online or over the phone. Automated phone banking systems are in place just about everywhere and online access is becoming more and more commonplace. Some HSA providers who offer investment options even let customers go online to manage their investments.
Providers are also leaving control in customers’ hands by offering checks and/or debit cards to cover their health expenses. Generally providers are encouraging the use of debit cards and they frequently come at no additional cost to the customer. Checks, which are oftentimes optional, still need to be purchased by the customer and sometimes have a transaction fee, especially after writing a certain number of them.
In general, though, fee structures are rather simplified. Many providers are opting to charge annual or monthly fees rather than a fee per each transaction. Some give customers the option of paying a higher monthly fee or paying per transaction. For example, a customer who uses his account often could opt for a higher monthly fee that would include all transactions while another customer who doesn’t use the account as often might opt for a lower monthly fee and pay for each transaction. Some Incentives Offered
Other providers are offering incentives to lower or reduce fees based on a higher balance. Some have a policy of waiving or reducing monthly fees once the account balance reaches a certain amount.
Interest rates are another variable for HSAs. The majority of providers have a tiered interest rate that depends upon account balance – meaning, the higher the balance, the bigger the interest rate. Interest rates do tend to vary, so they should always be confirmed with the provider.
Finally, most providers allow customers to make deposits whenever they would like, whether it’s periodically or in lump sums. Though limits are placed by the IRS on exactly how much can be contributed to an HSA each year, few limits exist on how often deposits can be made. Many providers work with employers to set up automatic tax-free contributions through direct deposit.
reported by Stacey A. Shannon
** Datapath's complete fee schedule is listed below. However, the rankings were based on all services listed, therefore making its total $102.50.
|1099 and 5498 (paper & electronic) ||$0|
|Monthly Paper Statements||$2 (optional)|
|Paper Disbursements||(check) $1.50 (optional)|
Using the assumptions established by hsafinder.com, which include all optional services and an average of seven paper disbursements per year, DataPath's first-year fees total $102.50.If you choose the standard service level, DataPath's first-year fees total $68 . It has been DataPath's experience that a very small number of their customers choose the optional services. For example, less than four-tenths of 1% (.004) of their account holders request paper disbursement checks. In addition, they issued a mere 23 paper statements last month. Their account holders would much rather take advantage of the convenience of 24/7 access to their account statements and history.