Have a health savings account? Here's what financial experts say you should know.

Millions of Americans have health savings accounts but might not fully understand them - Konstantin Evdokimov on UnSplash

The Consumer Financial Protection Bureau also has concerns

Are Health Savings Accounts (HSA) worth their time and investment? The Consumer Financial Protection Bureau (CFPB) thinks, by and large that they are, but the agency has released a report detailing the complex costs and fees that many consumers with health savings accounts are forced to pay. 

You could have one of the 35 to 40 million health savings accounts in 2023 – ones managed by HealthEquity, Optum, Fidelity, or HSA Bank. The CFPB likes that these accounts offer tax advantages to help you offset the costs of high deductible health plans, but is not crazy about all the incidental charges. 

“Health savings accounts are promoted for the tax benefits that chip away at the price tag of health care,” said CFPB Director Rohit Chopra. “Many consumers do not realize the fees, switching costs, and low-interest yields that will come with the accounts.”  

How you should think of an HSA

Think of an HSA as a special savings account for healthcare expenses with a high-deductible health plan (HDHP). You contribute pre-tax money that grows tax-free – like you would with a Roth IRA or municipal bond.

Unused funds roll over and can be used for qualified medical expenses – doctor visits, prescriptions, even eyeglasses, hearing aids, and some dental procedures. 

“Compared to other investment vehicles, an HSA offers low-cost, broad-based index mutual funds and/or exchange-traded funds (ETF's) that you can invest in, especially if you plan on being with the company for a prolonged period of time,” Chris Urban, founder of Discovery Wealth Planning, told ConsumerAffairs. 

They don’t make it easy to understand, though

As ConsumerAffairs spoke to HSA experts, we found several issues. In addition to fees, an HSA is often loaded with legalese, gotchas, and caveats.

“The issue is that most employees do not truly understand their health insurance to begin with (especially a younger workforce),” Ethan Pickner, AZ Health Insurance Brokers, said. “Participating in an HDHP HSA-qualified plan only increases the complexities associated with healthcare.”

Brent Nicholson, co-founder and chief partnership officer, Carrum Health, agrees that using an HSA can be confusing and burdensome. To utilize HSA funds, individuals must submit eligible medical expenses for approval, but the qualifying criteria can be unclear. 

“Even trying to ascertain if a potential expense qualifies is not easy," he said. "On their websites, there are laundry lists of medical expenses and you’d have to scroll through each of them and the inclusion/exclusion caveats to find out if your procedure or expense qualifies. This makes things overwhelming and confusing for consumers, as a result of which they may not end up fully using the money they contribute to their HSAs.” 

Fees to please? Nope. 

Another gotcha that’ll cost ‘ya are the “administrative costs.” If you sign up for an HSA, just remember that you must submit qualifying medical expenses to justify using your HSA dollars to cover that cost. 

But, as we learned from Dr. Bernie Saks, MD, CEO of ful-Health, consumers have something called Transparency in Coverage (TiC) on their side. TiC requires in-network providers to give you things like historical allowed amounts for out-of-network providers, personalized cost estimates, and more.  

"Challenges with HSAs often stem from the transition between low and high deductible plans, leaving members facing a steep learning curve in navigating their healthcare spending,” he said. “TiC helps members know how much their provider visit will cost, greatly improving access to care.”

So, if you’ve got questions, remember that the HSA vendor HAS to give you answers. 

Deductible detours

HSA plans attract consumers with lower premiums, but Nicholson warns, "the catch is they also come with extremely high deductibles" which can lead to financial hardship if significant medical care is needed.

“When you compare this with the savings average Americans have, it’s a considerable amount and coverage doesn’t kick in until they fully meet their deductible. It’s a significant hit on the pocketbook for people under the impression that they’ve purchased health insurance that is going to cover their medical expenses,” he said.

Need to know more?

If you want to explore HSAs further, you can peruse the CFPB’s report, Health Savings Account Issue Spotlight or read consumer complaints about health savings accounts. ConsumerAffairs also has a complete guide to tax-free investments, including HSAs. That guide is available here.

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