Morningstar's Latest Insights on the Health Savings Account Industry

Morningstar Releases New Insights on Health Savings Accounts

Morningstar, Inc. (NASDAQ: MORN), renowned for its independent investment insights, has unveiled its annual study on the landscape of Health Savings Accounts (HSAs). This eighth annual report delves into the current state of HSAs, providing a comprehensive assessment of leading HSA providers. The findings highlight two crucial use cases for HSAs: as investment accounts aimed at saving for future medical expenses and as spending accounts for covering immediate medical expenses.

Key Findings from the Study

The study reveals significant improvements in various HSA features, boasting lower fees and a broader array of investment options. However, the report also points to areas necessitating growth, with only four providers earning an Above Average rating in both main categories evaluated.

Greg Carlson, the senior manager research analyst, stated, "The enhancements made by providers to their HSA offerings have yielded tangible benefits for investors. Yet, the sector still grapples with transparency issues related to undisclosed costs that can complicate investors' healthcare financial planning. Our findings not only acknowledge the strides made but also emphasize the existing challenges that must be overcome for HSAs to reach their full potential."

Highlights of the HSA Landscape

Several crucial insights emerged from the research:

• Assets within HSAs surged to an impressive $123 billion, sustaining a formidable growth trajectory since their inception, primarily driven by the rise in high-deductible health plans (HDHPs).
• Fidelity stands out as the frontrunner among HSA providers, achieving a High rating in both its spending and investment account features. It notably offers an attractive interest rate of 2.69% on all account balances, outpacing competitors.
• The HSA contribution limits are anticipated to increase in 2025, further enhancing their tax advantages, which are superior to 401(k)s, IRAs, and 529 plans. Proposed legislation would allow contributions even if a spouse maintains a flexible spending account (FSA), and certain fund rollovers from FSAs into HSAs would also be permitted.
• Participants’ awareness could be greatly enhanced through better communication and simplified procedures. Notably, unlike retirement plans, mandatory enrollment in HSAs is currently not supported by legislation. Many providers also have minimum balance requirements before investors can engage in investment activities.
• From 2019 to 2022, the HSA market has experienced considerable consolidation due to acquisitions among key players. Recently, however, this trend has seen a slowdown, marking a pivotal change in the industry's dynamics.
• Morningstar's Medalist Rating showcases robust investment menus across HSA providers, with at least 89% of available funds holding Gold, Silver, or Bronze ratings.

Provider Assessment Summary

The evaluation for each HSA provider based on the study is as follows:

HSA Provider Assessment

• Associated Bank: Average Investing Account, Average Spending Account
• Bank of America: Average Investing Account, Below Average Spending Account
• Fidelity: High Investing Account, High Spending Account
• First American Bank: Average Investing Account, Above Average Spending Account
• HealthEquity: Above Average for both Investing and Spending Accounts
• HSA Bank: Above Average for both Investing and Spending Accounts (HSA Bank is affiliated with Morningstar)
• Lively: Average Investing Account, Above Average Spending Account
• NueSynergy: Above Average Investing Account, Average Spending Account
• Optum: Average Investing Account, Below Average Spending Account
• Saturna: Above Average for both Investing and Spending Accounts
• UMB: Average Investing Account, Above Average Spending Account

New Addition to the HSA Landscape

This year’s study welcomed a new participant: NueSynergy, which is broadening its HSA services to a national audience. It's important to note that this report does not cover HSAs provided through employers, as offerings can significantly differ based on relationships and workforce size.

Conclusion

The rich insights provided in Morningstar’s landscape study detail both the advancements and the potential hurdles within the Health Savings Account industry. With ongoing developments and legislative changes on the horizon, the future of HSAs certainly looks promising. Individuals and investors alike must stay informed about these opportunities as they continue to evolve.

Frequently Asked Questions

What is the focus of Morningstar’s eighth annual HSA study?

The study primarily assesses the current state of the HSA industry, particularly evaluating 11 leading HSA providers and their offerings as investment and spending accounts.

How did HSAs perform over the past year as reported?

Total assets within HSAs reached $123 billion in 2023, demonstrating robust growth driven by the prevalence of high-deductible health plans.

Who led the HSA provider assessments?

Fidelity emerged as a leader, earning a High rating in both spending and investment account categories.

What legislative changes could impact HSA contributions?

Contribution limits are expected to rise in 2025, enhancing tax advantages, and new legislation may allow contributions from individuals whose spouses utilize flexible spending accounts.

What is unique about the findings related to NueSynergy?

NueSynergy's inclusion marks a broader national expansion of HSA offerings, reflecting shifts in the industry’s landscape.

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