How to get the most from a Health Savings Account

Choosing a health savings account can be daunting, especially for people funding one for the first time. But some comparison shopping can help minimize fees and maximize savings, researchers say.

Providers of health savings accounts are generally doing a better job of disclosing details like fees and investment options, said Leo Acheson, associate director of multiasset and alternative strategies at the financial research firm Morningstar. But, he added, "there's still some room for improvement."

While updating an analysis of 10 big providers of the accounts, he said, Morningstar found that just four made all details — like fees charged — available on their websites.

A health savings account, or HSA — available when paired with a specific type of high-deductible health insurance plan — offers triple tax benefits.

You can contribute to an HSA through paycheck deductions, reducing your taxable income; interest or investment gains are tax free; and withdrawals aren't taxed, either, as long as you spend the money on eligible items or treatment. (If you don't have health coverage through your employer, you can make tax-deductible contributions on your own to an HSA, as long as you have a compatible health plan.)

Money in the accounts can be used for current health and medical expenses or invested for care in the future.

According to Fidelity Investments, a couple who are 65 years old and retiring in 2018 may need about $280,000 to cover health costs in retirement, and funding an HSA can help with that burden.

People generally use the money to cover current costs, like deductibles and co-payments, rather than contributing as much as possible and investing for the future.

Overall, two-thirds of account holders withdrew funds — an average of $1,725 — in 2017. Just 5 percent of account holders had investments other than cash.

That may be because most people simply can't afford to pay for health care out of pocket and need the cash in the accounts for medical bills, said Paul Fronstin, director of the institute's health research and education program.

Or, he said, it could be that people still think of HSAs as flexible health spending accounts, a different sort of workplace account with fewer perks. Unlike those accounts, HSAs are portable, so you can take yours with you if you change jobs.

Over time, however, HSA holders appear to become more comfortable with investing.

"It takes time to learn how these things work," Fronstin said.

Whether you are using your HSA for saving or for investing, it's wise to compare fees and other features offered by different accounts, Acheson said.

If you have health insurance through your employer, your HSA account is usually chosen for you, and your employer probably pays any monthly maintenance fee. But if you're buying insurance on your own — or if you don't like the investment options available in the account your employer offers — you can choose another account provider.

Acheson suggests keeping your company's HSA to receive any employer contributions, then transferring the money periodically to the second HSA.

Morningstar recently rated 10 large account providers available to individuals, based on whether the account is mainly for spending or for investing.

Investors should also look for low fees, whether on "passive" index fund investments or actively managed funds, and no threshold on investments, or a low one. (Some accounts require a minimum balance — often $1,000 to $2,000 — to be maintained in the checking account before money can be invested.)

Eric Remjeske, president of HSA research firm Devenir, said that it makes sense to evaluate the costs of a plan, but that consumers should also consider what they are getting for the extra fees.

Some higher-fee accounts, for instance, may offer more services, like the availability of "robo" advisers to help with investment selections.

Devenir offers HSAsearch.com, a tool that includes more than 500 accounts, to help consumers compare HSAs.