HSA costs you need to watch out for - and when not to worry

By Alessandra Malito

Health savings accounts can save you money in taxes, but fees can eat away at the benefits

Health savings accounts are powerful tax-advantaged tools to pay for healthcare, but there are hidden fees that could cost consumers some of their savings, the Consumer Financial Protection Bureau warns.

Although these accounts can be a benefit for individuals who need to pay for healthcare, both now and in the future, they don't come without caveats. Some of the most common fees account owners may not know about include monthly account maintenance fees, transaction fees, printed statement fees and transfer or switching fees, the agency said in its latest report released this week.

"The fees associated with HSAs often eat away at the benefits that Congress intended to provide. This concern is exacerbated by the fact that some consumers may be pushed to acquire an HSA, such as through automatic enrollment," the CFPB wrote in its report. "When consumers end up with an HSA with high fees and inferior terms, it directly reduces the funds they can allocate to their healthcare needs."

Employees typically have access to a health savings account when they are enrolled in a high-deductible health plan. Individuals can contribute, earn and distribute HSA assets tax-free if they use them for qualified health expenses, and unlike a Flexible Savings Account (or FSA), the money isn't forfeited at the end of the year. That's why these accounts are often touted as a beneficial retirement planning tool, as it is yet another asset to help pay for a retiree's expenses - of which healthcare is often a major expenditure.

Around 36 million health savings accounts held more than $116 billion in assets in 2023 - a more than 500% increase in assets since 2013, according to the CFPB.

While consumers should be aware of the fees associated with their accounts, they should also remember the advantages that come with HSAs, said Jake Spiegel, a research associate at the Employee Benefit Research Institute. "You are realizing much more in tax savings than you're paying out in monthly fees," he said, adding that these savings would otherwise be subject to federal, state and/or local taxes. "That can be a huge amount of tax savings."

Not all employees are responsible for these fees, both the CFPB and HSA proponents said. "Employers will typically cover the fee and frankly, depending on the size of accounts, a lot of providers don't even charge an administrative fee," said Bryan Levy, managing director of strategy at Inspira, an employer benefits provider. "Potentially, there are competitors out there charging fees, it is their business decision, but I think a majority of the industry moved away from that model."

HSAs are still relatively new, EBRI's Spiegel said. They were only introduced in 2004. "While it feels like a long time ago, in the grand scheme of things, it really isn't all that long," he said. And just like the 401(k) plan, which became popular in the 1980s, there will likely be continued fee compression for HSAs in the years to come, he said.

In the meantime, there are ways employees who do pay their own fees can adjust. Most fees will be non-negotiable, but there is at least one way to reduce costs. Outside of switching providers (or jobs), account owners can cut paper statement fees by enrolling in email delivery or opting out entirely.

The account balance also matters. The CFPB used a $1,000 account balance in its examples to prove the impact fees can have on an account's savings. For example, an HSA with a $1,000 balance for a year could see very little in interest earnings because of low rates - 15 cents or 50 cents, according to the agency's analysis of two HSA providers. But that same account could have maintenance fees of somewhere around $45 or more per year.

Fees would have a disproportionate effect on underfunded HSAs, said Brian Whorley, founder and chief executive officer of Paytient, a healthcare payment firm. "Those fees can certainly eat at those lower balances quite a bit," he said. Invested assets within an HSA can act as a hedge against those fees, he added.

HSAs often hold much more than the CFPB's example, though, and someone who consistently funds her HSA won't feel the same effect as someone who leaves the account untouched. "A lot of these fees, they won't add up to being anything substantial," Spiegel said.

EBRI's HSA database shows the average HSA balance is somewhere around $4,300. "The calculations that the CFPB uses is not going to be particularly illustrative for most accounts out there," he said. "Talking fees themselves, they won't add up to a whole ton over the course of a year when you have an HSA for 30 or 40 years."

-Alessandra Malito

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05-04-24 0923ET

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