NEW YORK (Dow Jones)--When Dick Stanley first heard about a new type of tax-sheltered savings account for medical expenses, he rushed out to get one.

One year later, the 61-year-old retiree from Greenville, S.C., had just one
complaint: The fees associated with his tax shelter were "out of line," he said.

More than one-and-a-half years since so-called health savings accounts were launched in 2004, people like Stanley have been growing vexed over the fees. You can open an HSA free of charge. Stanley, however, went with a bank his insurance carrier recommended and paid more than $60 in the first year. Other HSA carriers charge more than $100 in the first year - with one service costing $235. What's more, higher fees don't necessarily guarantee higher savings rates.

Indeed, there can be little or no difference between the businesses that charge and those that don't. Stanley, for example, moved his money to a bank that offers all the same services free of charge, but at a better interest rate, he said.

Health savings accounts, or HSAs, were created in December 2003 to help people reduce the rising cost of health-care coverage. They have grown steadily. To open an HSA, people have to purchase a certain type of high-deductible health-insurance policy. After that, they are allowed to open a savings account that permits them to shelter from taxation the money they spend on certain health-care expenses.

It's the savings account portion that has some people riled over fees. One reason the fees are bothering people is that HSA savings tend to be small, especially in the first few years, because contributions are limited by the federal government. The average person with an HSA will save about $840 at the end of the first year and write roughly four checks a year, according to data from HSAFinder, an online service that provides free information about HSAs and HSA providers.

Officials at HSAFinder.com received so many complaints about HSA fees that it compiled a list of the top 10 cheapest and most expensive HSA account providers.
The list should be released on the company's web site next week.

"We're not here to hang people, just to give accurate numbers," said Don Mazzella, editorial director at HSAFinder.com.

Still, the data show a definite problem with fees, said Mazzella, mentioning how some institutions charge people for every little thing, including a fee to open accounts, to make transactions within the account and to close accounts.

"They're really doing a rip-off job," he said.

Mazzella said the good news is that competition is driving down fees. More than one million people were covered under this type of plan as of March 2005, more than double the number recorded just six month earlier, according to data from America's Health Insurance Plans, an industry organization in Washington, D.C.

Topping HSAFinder.com's list for the cheapest HSA providers, based on first-year fees, include American Chartered Bank of Schaumburg, Ill, Capitol Bank of Madison, Wis., and Blackhawk Bancorp Inc. (BHWB) of Beloit, Wis.

Topping the list for the most costly HSA providers, also based on first-year fees, include Equity Trust Company of Elyria, Ohio; Datapath Inc. of Little Rock; Sterling HSA of Oakland, Calif.; Trustar Retirement Services, a unit of Principal Financial Group Inc. (PFG), and First HSA Inc. of Reading, Pa.

Some HSA providers on the expensive list aren't actually banks, but businesses known as third-party administrators that administer and manage benefits programs for employers. Third-party administrators say they tend to charge more than banks because they provide additional services that banks don't. These include adjudication of insurance claims, coordination of benefits, statements to employers about usage and advice to employees.

Sterling HSA, for example, charges $140 the first year and $105 a year thereafter to people who want to make unlimited transactions. The fee is due to the extra services Sterling provides, including advice about what qualifies as an eligible HSA medical expense, said Cora Tellez, co-founder of the company.

"This is such a new field that one of the things that tend to be undervalued is how much customer education is involved in this," said Tellez.

While such services may be beneficial to employers, they can be of less use to individuals, who often turn to HSAs because they need to save money on health insurance. Plus, individuals don't require many of the services provided to employers, like coordination of benefits and statements about collective usage.
Yet, third-party administrators, like Datapath and Sterling HSA, will charge individuals the same price they do employers.

Meanwhile, some people say it's worthless to pay for certain services, such as advice about what qualifies as an eligible HSA medical expense.

"That's nice to have but it's not a need-to-have," mainly because the IRS provides very detailed guidance on this topic on its Web site, said JoAnn Laing, president of Information Strategies Inc., parent of HSAFinder.com.

Another reason some institutions charge higher fees is because of the investments they provide. The most costly HSA provider, Equity Trust Company, charges people $235 the first year and $185 a year thereafter. This company doesn't, however, provide traditional HSA services. Rather, people invest their HSA dollars in illiquid real-estate ventures, like tax liens.

First HSA charges $85 the first year and $50 a year thereafter. The fees are justified because the bank provides the highest interest rates in the business, said William West, president. Rates at First HSA start at 1.5% on assets between $100 and $1,000, and - like most HSAs - ratchet up as the amount saved rises, in this case, to 4.15% on accounts worth at least $15,000.

It's true that the low-fee HSA providers tend to come with lower interest rates. The reverse isn't necessarily true, however, and people can't assume higher costs always translate into higher returns on assets.

Sterling HSA, for example, currently offers a rate of 0.75% on assets under $2,000. Blackhawk Bank, meanwhile, offers 1.5% on assets between $500 and $5,000. Blackhawk also has no setup fee and no monthly maintenance fee for the first year. (It charges $30 a year for balances under $1,500 after the first
year.)

It's not just consumers who are annoyed at HSA fees. "This is really a checking account and they're trying to charge me $3 a month because they can," said James Snyder, president of Great Lakes HSA, a Rocky River, Ohio, business that administers HSA accounts for employers.

When Snyder first started his HSA business, he spent a year "fighting with banks" to get free accounts, he said. He finally settled with American Chartered Bank, which has no setup or monthly maintenance fee, but remains annoyed over the fees other institutions are charging, he said.

"The public's not informed enough yet to know you don't have to pay these fees," said Snyder.

As more people become familiar with HSAs and as more businesses enter the field, "it's going to push the price down," he added.

-By Kaja Whitehouse, Dow Jones Newswires; 201-938-2243; kaja.whitehouse@dowjones.com

Copyright (c) 2005 Dow Jones & Company, Inc.