As
2006 fast approaches, millions of individuals
and employees will be enrolling in a HSA health
plan for the first time. Sadly, few will have
any idea how to select a provider that has
the health savings account that best meets
their needs and financial goals. This article
will address the most important features employers
and consumers should be looking for in a HSA,
while also providing a list of questions that
will assist consumers in choosing the provider
with the highest level of service and product
knowledge - at a reasonable price. In addition,
a special section has been added for employers
and HR directors. HSAs can be a great option
for many people, but with the wrong administrator,
they can be a nightmare in confusion and mis-information.
ESSENTIAL FEATURES OF A HEALTH SAVINGS ACCOUNT
Although one would think all
HSAs have similar features and benefits, the
reality is most HSAs do not offer the essential
features needed for a HSA or they offer them
for an extra fee. If your provider doesn't
offer these following features, it might be
time to look for a new provider
1.
Online Banking and Online Bill Pay
2. Monthly Statements
3. Debit Card
4. Low or No Fees
5. Nominal Interest Rate
1.
Online Banking and Bill Pay - Accounts
are owned by the individual, not the employer.
As a result, you should be able to tap into
your HSA account in several ways without any
complications or delays. More then likely,
your bank will not be located in your home
town, so online access to your account is
essential. In addition, online check writing
should be a requirement as it is the easiest
and safest way to pay your medical bills.
2.
Monthly Statements – Many banks
do not provide monthly statements for their
HSA product or only provide online statements
and will charge you extra for traditional
paper statements. Look for a bank that provides
online and traditional monthly statements
mailed to you directly at no extra charge.
Record keeping is very important - especially
if you get audited!
3.
Debit Card - The debit card is important
as your medical coverage card as most doctor
offices accept both debit and credit cards.
Since you will be paying a larger deductible,
count on using your debit card at least 12
times a year. In addition, if you have a spouse,
you will need a 2nd debit card. There are
a few banks that do not charge you for this
second card. Others will charge you $25 or
more.
4.
Low Fees – I can not stress
how important fees are to the future value
of your account. Everyone focuses on interest
rates and banks do a good job of hiding fees
and promoting high interest rates that are
rarely achieved until you reach a $10,000
balance. However, our extensive analysis on
HSAs shows that fees have a far greater impact
on the future value of the account then interest
rates, especially in the first 3-5 years.
Please read our article titled, “The
Hidden Fees of Health Savings Accounts”
It is essential
reading before purchasing your HSA. If you
don’t have time to read another article
on HSAs remember this: If your provider is
charging you a setup fee or annual fee over
$30, keep looking! Also, watch out for closing
fees and per transaction fees. Banks usually
don’t disclose this information up front.
5.
Interest Rates - Everyone wants to
maximize their savings and investment, HSAs
included! But don’t be drawn into advertised
high interest rates being offered with HSAs.
Many banks are advertising rates of 4% or
higher. However, they fail to mention the
required balance is $10,000 to $15,000! In
addition, banks that usually have the highest
interest rates, also had the highest fees.
Lastly, this will be a transactional account
much like your current checking account. Don’t
worry about investing in stocks or mutual
funds at this point. When is a good time to
think about mutual funds for your HSA dollars?
Our rule is when your account balance is double
that of your annual medical deductible. Until
then, you want this money liquid and readily
available. Think of your HSA more like a checking
account then a 401K, despite what
Other
features
For
people that are not comfortable with debit
cards, traditional checks are a must! However,
make sure to read the fine print, many banks
are charging a per check fee over $1.00 per
check. Finally, what about Mutual Fund options
for your HSA? 90% of the people ask us about
Mutual funds and HSAs, mainly because they
view the HSA much like a 401K. Remember, your
HSA is a transactional account, which means
you are going to be using it a regular basis.
Mutual funds are not exactly liquid accounts,
nor are the fees structured for numerous transactions.
Stick
to a interest bearing checking account and
make your HSA simple. OK, what about the people
who are not going to touch the funds and are
using it as an investment. Our advice, find
a CD for 2005-2006. They are paying over 4%
(tax free). Based on the fees and investment
portfolio of the mutual funds currently being
offered for HSA dollars, I would wait another
year until more funds become available and
fees are reduced.
EMPLOYERS
/ HR DIRECTORS
If
you are a HR director at a company and offering
a HSA option for 2006, you will probably be
offered the HSA provider that has partnered
with the health plan carrier that is offering
the HSA qualified health plan. The terms "seemless
intergration" will be mentioned - which
sounds very good, although it is never really
explained what it means. Regardless, it sounds
simple so you decide to take the brokers advice.
However, after your employees sign up, the
fees start appearing on their monthly statements.
If you are using the HSA through JP Morgan
Chase, those fees with average $70 per employee,
for the first year. Unfortunately, you were
unaware that HSAs can be found with zero fees
with banks that have been offering HSAs since
they were established two years ago.
Alternatively,
the local bank down the street is now offering
HSAs. The fee is only $3.00 a month and the
employees are happy because their money is
with a local bank! Unfortunately, the local
bank just started offering HSAs and a little
unsure how they work and the necessary forms
that are needed. For instance, deposits can
be made for the 2005 tax year, up to April
15, 2006.
Does
the bank have a simple process for determining
what year the deposits will be credited to
for the first 4 months of year? More importantly,
your employees are asking you new questions
every day on the use of these new accounts.
You refer them to the bank, Big mistake, because
the bank knows nothing about the use of these
accounts, they just started offering them
two months ago. Your next call is the health
carrier, who says "Employees should consult
with their accountant". Of course, every
person has an accountant..
This
example highlights a very important question
you must ask the insurance broker, health
carrier and provider - "When my employees
have questions on the use of their HSA, do
any of your organization's have a HSA Expert,
in-house that is available to answer detailed
questions on a timely basis?" In two
years, I haven't heard more then 3 people
answer yes!
SUMMARY
It's
important to find an HSA administrator that
can provide superior customer service, product
knowledge, convenient account access, and
reasonable pricing. This allows you to get
the most out of your HSA deposits, while making
your account easy to use.
While
HSAs might be new and a little confusing,
it's easy to see the potential for growth
and continued tax benefits through the utilization
of this new product. But, ease of use is your
number one concern for the first year
Before
you open an account test out their customer
service and product knowledge. If you are
put on hold for 10 minutes, like we were when
we did our test, keep searching. There are
great providers offering HSAs are reasonable
rates with all the features highlighted above.
Lastly,
make sure the provider discloses all the fees
associated with their HSA, along with the
procedures for contributions and withdrawals.
Don’t focus on the interest rate, in
most cases, fees will have a greater effect
on the future value of the account then interest
rates.
Questions You Should Ask
