When health savings accounts (HSAs) were introduced in 2004, the IRS required that the plans be held by a qualified custodian or trustee, similar to IRAs. As a result, many custodians created their own HSA programs or chose to provide custodian services for firms interested in entering the HSA market.
Fast forward to 2010 – today, there are many HSA custodians to choose from, and as an agent working with both employers and individuals, it's important to understand the custodian's role and the differences among them. Many agents choose to go with the HSA associated with the insurance carrier that offers the associated high-deductible health plan (HDHP). There are, however many more available options that may be a better fit for your client. Since few individuals, corporate clients, or employees are familiar with HSA custodians, they rely on you to provide education and direction.
Before we analyze the differences among custodians, it's important to understand the universal characteristics of HSAs: They're used to pay for "qualified" medical expenses on a tax-free basis, and offer the opportunity to accumulate those funds year after year.
HSA custodians can, however, provide significantly different options. They have the same basic role across the board – opening accounts, accepting contributions, monitoring distributions, keeping records, and providing tax reporting. Yet the breadth of their services, fee structures, and approaches to client service can dramatically vary. Here, then, is a summary of the more important criteria to consider when reviewing a potential or current custodian.
1. Length and scope of HSA custody experience
How long has the firm been providing HSA custodial services? How many individual or group HSA account owners does it serve? The more years it has in the business and the more accounts handled, the greater the likelihood that the firm has a strong track record of satisfying individual account holders and meeting regulatory requirements.
2. Account fees
Clients and prospects want to know the associated costs of an HSA. How much does the custodian charge for services? Does it charge monthly, or annually? Are the fees up front, or are there many hidden costs? Many HSA custodians charge individual setup fees, monthly administrative fees, and transaction charges. Other custodians charge one-time annual fees so that all the charges are up front and clients can avoid "nuisance" fees. Not only do custodians charge fees in a variety of ways, they also charge wildly different amounts: A recent survey revealed HSA fees range from $0 to $185, with an average fee of $13.30 (based on $2,500 average balance).
3. Client service experience
