Ask the grumpies: how to find an HSA provider

FF asks:

Do you have any thoughts/advice on choosing an HSA provider?

I already have the ACA plan figured out. I first check whether my doctors are in-network. Next, I come up with a detailed list of what I expect to need based primarily on my expenses for the current year. I then calculate what I would pay for the entire year under each plan I’m considering, taking into account both premiums and OOP expenses (including before/after deductibles and copays). This can get very complicated. I also calculate the worst-case scenario (total premiums plus OOP max). This year, for the plans I was considering, the answer was the same for both the expected and maximum scenarios. Plus the HDHP + HSA will have further tax advantages.

What I’m concerned about now is the Health Savings Account, which is not offered via the ACA, but separately through financial institutions if you have a compatible health plan. So far, the most useful information I’ve found is from Consumer Reports: https://www.consumerreports.org/health-savings-accounts/how-to-choose-a-health-savings-account/

People who have high deductible health care plans (HDHP) are allowed to put money into a Health Savings Account (HSA) which functions basically as a super-charged IRA that can only be spent for medical purchases.  By supercharged, we mean the money isn’t taxed going in and the earnings aren’t taxed going out.  It’s pretty amazing.  (Note that these are different than Flexible Savings Plans, which are sometimes called Health Spending Accounts just to be really confusing– these have to be used up each year or the money goes back to the employer, just like a dependent daycare account.)  By IRA, we mean an individual retirement account that functions as a tax-advantaged bucket for retirement savings.  (FF already knows all this.)

Back when I last looked at HSA, there weren’t a whole lot of options– you basically went with what your employer offered you because that was what was available, and most employers offering HDHP also put money into the HSA themselves because that money came with tax benefits for them.  Having outside HSA didn’t make a lot of sense because there was no market for them.

Today there’s a market for HSA outside of individual employers, which means that there are a lot more options for HSA.  Many places that you can stash an IRA will also let you do an HSA.  What you should be looking for in an HSA is similar to what you should be looking for in an IRA provider, with a few additional wrinkles.

First off:  If your employer offers an HSA contribution, chances are that’s going to have to go into the HSA account that they have chosen.  According to that consumer reports article FF linked to, you can keep that HSA account open, let the employer money go into it, but then transfer to an outside HSA account if you want.  I have never found it easy to move money from work accounts to outside accounts, but depending on fees, this may eventually be worth it.

Second:  As the consumer reports article notes, you need to know if you’re going to need the money long-term or short term.  If you’re credit-constrained or have high medical expenses, then you will need to use the money right away.  That means you need an HSA account that has things like savings accounts or certificates of deposit for safe money.  If you’re not credit constrained, then it makes sense to just think about this as another retirement account, which means you want something that has access to low cost index funds in the stock market and maybe in the bond market too, depending on what’s available in your other retirement accounts for diversification purposes.  So, if you need short term then make sure the HSA has short term options.  If you need long term, make sure there are long term options.

Third:  Compare fees.  This part is just like with an IRA.  You want the lowest fee funds.  Watch for hidden fees.

So… that’s pretty much all of my thoughts on the topic.  The consumer reports article you linked to looks really good to me.  It’s not saying anything stupid AFAIK and covers everything I thought of.

Grumpeteers who have purchased HDHP for use with your HSA, what do you recommend?

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13 Responses to “Ask the grumpies: how to find an HSA provider”

  1. Ali Says:

    I think the answer really depends on whether or not you plan to put enough in the HSA to actually save long term or just plan to fund annual expenses. For us, we just use it to cover our estimated annual expenses so I am just leaving it in a money market account. (We are basically doing it to reduce taxes on the short term but not worrying about the long term aspect of it.) We use Bank of America (through my employer) and it is very easy. One thing I like about BOA (though maybe all are this way?) is we have a debit card we can use to access the account—it’s easier just to pay a bill with the debit card than to pay it yourself then reimburse yourself with HSA money. From that standpoint Bank of America has been easy to work with.

    I will say—if you haven’t had a HDHP before, your annual expenses will probably be much higher than you’re used to so fund the HSA more than you think the first year. I underestimated our expenses the first year because I was used to paying copays for doctors visits rather than the entire cost. So basically every little illness or minor thing will set you back $200-500 depending on dr, tests run, etc. For us, we still save money using a HDHP in the long run.

    • Leah Says:

      So, in essence, you are treating your HSA like a health reimbursement/flex spending account?

      I will say that our financial advisor strongly encouraged us to max out our HSA before any other retirement vehicles. If you cash-flow reimbursements for health expenses this year, you can reimburse yourself for those expenses in any future year. So, 20 years from now, you can pull out a receipt from a $1,000 procedure from this year and reimburse yourself for the money. Therefore, the HSA is a retirement account for which you will never owe taxes (going in or out).

      Clearly, do what works financially for your family. But if you can swing it, the HSA is a great way to let money pile up tax free for retirement (or even for a gap year pre-retirement). You can also use the HSA to fund health care premiums at any point in time or, again, reimburse any health care expense that you previously paid out of pocket.

      • Ali Says:

        That is a good point. I haven’t used it as a long term savings vehicle mostly because I am guessing the healthcare landscape will change a lot between now and when I retire, but even if it did it’s not like I’ll lose the money. I need to maybe start using this differently. (I had been funding my HSA instead of a flex spending just because at least you don’t have a use it or lose it rule.)

      • Leah Says:

        yeah, the HSA is WAY better than flex spending. I figure the landscape will change as well. If we go to, say, medicare for all, I can either use the money to pay for supplemental premiums (I’m sure that will be a thing) or stuff like my hearing aid (young/old lady alert — I have damage to my ear from infections as a kid).

        I hadn’t thought of it that way until our financial advisor pointed it out. I had stockpiled a bunch in there but have been reimbursing myself this year. I think we’ll go back to cash flowing when we can.

    • FF Says:

      With my individual HSA, I can contribute multiple times as long as it’s no more than the annual limit. I believe that you can contribute for the previous year until April 15th. I’ve put in enough to cover my expected expenses for a few months, but expect to fully fund it before the deadline. My HSA will also have a debit card–I think it’s pretty common.

      As far as estimating your expenses, your health insurance claims should include the plan’s allowable charges, which will give you a good idea of what you would pay for expenses that you expect to incur (e.g, medications for a chronic condition) until you reach your deductible if you’re switching to an HDHP from the same insurance company. Of course you can’t really know for sure what expenses you will, but so far, for the expenses I expected, they are pretty much tracking with my cost estimates. I don’t know how similar the charges would be from one insurer to another,. A major advantage of the plan I chose it that copays for certain preventive medications are exempt from the deductible. My asthma inhaler, which would cost ~$220/month if subject to the deductible (and had a $30 copay on my previous plan), will have only a $15 copay on my new plan, even before I reach the deductible. My procedure yesterday means that I will likely save less overall with the HDHP than I originally expected, but I should still save compared with my previous plan, even if I reach the OOP maximum.

  2. FF Says:

    Thanks for answering my question!

    I found out just after choosing the HDHP that I would need to have a minor procedure in early January (which happened yesterday). I expect to be at least halfway to my deductible when the charges post, so I was also interested in getting everything organized as soon as possible and decided to just satisfice (a term I think I learned from this blog).

    For now, I’m using my HSA primarily for the tax advantages in medical spending. I ended up going with the HSA offered by the bank where I have my checking account because they waive most fees if you have another account with them and agree to get electronic statements. The only exception is that if you close the account <6 months after opening it, there's a $25 fee. I have retirement accounts with TIAA, so I also looked at TIAA/Heath Savings Administrators as another potentially easy option, but they seemed to have many more fees attached to just about everything you might need to do with an HSA. I started to look at other options as well, but ultimately decided that I just wanted to get it up and running and that I can change to a different option next year if I'm not happy with it.

  3. Katherine Says:

    We have a HDHP and HSA through my employer for the first time this year. My initial goal was to put enough into it to cover our out of pocket max, and until we get there we are using it just for short term tax savings – I’m paying all medical and dental bills using the debit card attached to the HSA. It’s important to note that you can pay much more through an HSA than just what counts towards your health insurance OOP max – for example, dental and vision-related expenses, but also things like infertility treatments that are not covered by insurance.

    Another benefit we’ve discovered is that money we contribute to our HSA through my employer will not show up on my W-2. It is as if I never earned it, but we can still save it/use it for medical expenses. Because of that, and because our income is close to the upper limit for our kid to be on S-CHIP insurance, we will probably switch to maxing out the HSA this year (prioritizing that over more traditional retirement savings) to ensure that we can still receive that benefit.

    • Leah Says:

      Read what I wrote above; I am not a financial advisor so can’t specifically tell you what to do, but I will say that our financial advisor strongly suggested we prioritize maxing out our HSA before worrying about other accounts.

      Another thing is that you should be able to pay your health care expenses with a rewards credit card and then reimburse yourself straight to your bank account. That’s what I do. It’s a way to get even more savings from using an HSA.

      • Katherine Says:

        I’m definitely aware of the idea of cash-flowing expenses now and reimbursing yourself later – it was one of the points our institution’s insurance consultants used to sell people on the idea of HDHPs with HSAs. But at this point in our lives it’s not clear that we *could* cash flow all of our medical expenses in addition to maxing out the HSA, and the stress of keeping track of what receipts can be reimbursed later is just not worth it to us. We’re satisficing.

      • Leah Says:

        I totally understand! We do a mix depending on our financial situation. I cash-flowed before we had kids; now that we have two, it depends how big the bill is. I just make sure to write on all my bills when I paid them and whether or not I reimbursed. Reimbursed ones get filed in the specific tax year where I reimbursed, and non-reimbursed are filed in their own folder for later reimbursement.

  4. gasstationwithoutpumps Says:

    My son pointed out to me that California does tax money taken out of HSAs, so I ended up using a Treasury fund for my HSA (which I just started this year). The Treasury funds are usually federally taxable (cancelled by being in an HSA) but not state taxable. I probably could earn a little more by using a stock index fund, but the extra hassle of dealing with the California income tax declaration years from now when I take money out is not worth it.

    I’m treating the HSA as purely a retirement account. Current health costs will be cash-flowed (we spend about $200-$1000 a year on health care).

    The HSA is managed by Health Equity, who have rather high fees for their funds, but moving money out to a different manager will probably wait until I retire, so that I only have to deal with the paperwork once.

  5. Debbie M Says:

    My favorite HSA provider decided to quit providing HSAs, so I had to start all over finding a new one. Sadly, it appears that because HSAs are so awesome, every single provider is pretty terrible. They know they can be terrible and still get your money. And there must be a lot of annoying paperwork they have to deal with, otherwise why would my favorite provider have quit?

    I ended up going for the strategy of just earning interest and not trying to invest. Still, the only company I could find that had minimal fees and maximal interest (Elements Financial) is paying me only 0.5%, though once you pass $10,000, they pay 1.0% (which I never will because I’m back to having good insurance). I’m seriously thinking of cashing it all in so I can move it to a higher-paying regular savings account (at Alliant Credit Union) to earn 2.0% which would be more than 0.5% even if I had a marginal tax rate of 70%, ha ha. But that’s an irreversible decision, so I’m holding off.

    Oh, there were a few credit unions with awesome HSAs that I couldn’t use because only local people could qualify, so you might want to google HSA [your city].


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