Health Savings Account Blog

By having your Health Savings Account funds managed by an HSA Administrator with high money-management fees.

Early on Health Savings Account balances were handed off by health insurers to partner banks. Many paid risk-free interest rates of around 4%. Health Savings Account rates have since fallen by half. The fund option begins to look attractive. But there is a tendency for the fund choices to be based on who offers the best deal--to the plan's managers, not to participants. With your 401(k) your employer has a legal obligation to put your interests first. With Health Savings Accounts no such standard of care applies.

United Healthcare controls roughly 15% of the market for Health Savings Accounts, which it offers through OptumHealth Bank, a wholly owned subsidiary. Until late last year its HSA clients had 11 mutual fund choices from Vanguard Group. Annual fees ranged from 18 cents to 35 cents per $100 invested.

By late 2008 Optum had yanked the Vanguard options for new customers. Funds on the menu now hail from firms like Munder and Thornburg; fees range from 76 cents to $1.37 per $100.

Why the switch? No coincidence, perhaps, that regulatory changes this January enabled entities like OptumHealth and their consultants to start pocketing a cut of fund management fees. Nor, perhaps, is it purely random that many fund firms popping up in Health Savings Accounts these days kick back fees to plan managers. Vanguard does not pay kickbacks.

UnitedHealth, OptumHealth Bank and Remjeske, their consultant, decline to say how they divvy up fees. WellPoint, another Remjeske client, started offering HSA funds in April via two-year-old Arcus Financial Bank, with six of its seven Arcus funds paying such fees (two of which have since suspended payments because of market turbulence, Remjeske says).

"Revenue sharing doesn't even cover our recordkeeping," Remjeske pleads. "It only helps keep the cost down."

He's got a point. Given the paperwork, the puny balances most savers have in their Health Savings Accounts are hardly a gold mine. But whatever the economics at the moment, there's cause for concern about weak disclosure, lax legal oversight and high fees on savings that people are counting on to keep their pill bottles filled in old age.

The conflicts of interest can get pretty thick. Aetna and Cigna rely on JPMorgan Chase to select mutual funds for their HSA customers. The result: a stable of funds run mostly by--surprise--JPMorgan. Joseph Mondy, a Cigna spokesman, declines to comment on compensation between Cigna and JPMorgan. Aetna and JPMorgan are mum about their deal.

The good news is there's a way for some HSA participants to avoid this fee-palooza. Some insurers provide self-directed accounts to customers with certain minimum balances. Blue Cross Blue Shield HSA plans in Minnesota offer a Charles Schwab account for participants with at least $10,000 in their Health Savings Accounts. For a $10-to-$20 trading commission participants can buy low-cost exchange-traded funds. Alternatively, they can pay a sales load or a $5 fee to get into a mutual fund from a menu of funds costing 60 cents to $2.25 a year (per $100) in expenses.

Another risk is that Health Savings Accounts could be pared back before balances get big enough to make choices really important. Some Democrats argue that the tax break is a luxury for the healthy and wealthy. One proposal knocking around would limit pretax contributions from the current $5,950 to no more than each plan's annual deductible, which could be thousands of dollars less.