Morningstar Magazine - October/November 2017 - 42

Spotlight: HSAs

EXHIBIT 5

Layers of Costs Maintenance and investment fees add up when included with the expense ratios of plans' underlying funds.
Average Total Expense Ratios, Assuming $15,000 Invested (Includes Fund Fees, Maintenance Fees, Investment Fees)

1.6
%

1.46
1.18

1.2

0.8

0.20

0.68
0.24

0.77

0.94

0.46

0.36

0.48

0.36

0.51
1.15
1.15

0.99

0.95

Expense Ratio
Maintenance and
Investment Fees
Average Underlying
Fund Fee Across
Four Asset Classes

0.85

0.72

Price Score
Positive
Neutral
Negative

0.65

0.48

0.44

0.0

1.35

0.98

0.58

0.4

1.20
0.55

1.33

0.05

The HSA
Authority

HealthEquity

Optum Bank

Bank of
America

∞ Positive

SelectAccount HealthSavings
Administrators
¶ Neutral

¶ Neutral

Alliant
Credit Union

HSA Bank

BeneﬁtWallet

§ Negative

Median
Retail Funds

Source: Morningstar. Data as of 05/31/2017.

Bank, Alliant Credit Union, and HealthSavings
Administrators. However, these plans offer a
1.60 funds, which dims their
handful of Neutral-rated
appeal. SelectAccount and HSA Bank offer
relatively compact
1.28lineups of 20 to 25 options.
Bronze-rated funds represent 25% or more
of options at both plans; we expect these funds to
0.96
outperform peers over the long haul, but we
don't have as much conviction in them
as compared0.64
with Gold- and Silver-rated funds.
Alliant Credit0.32
Union and HealthSavings
Administrators have vast lineups. Alliant Credit
Union has 133 options, and HealthSavings
0.00
Administrators offers more than 400 unique funds.
Offering such wide-ranging lineups makes it
hard for their funds to stand out as a group. We
also don't rate more than one third of options
at each plan, and both providers have at least one
Negative-rated fund.
Bank of America has the least impressive
lineup of all plans we analyzed. Currently, 48% of
options earn Morningstar Medals, though
29% receive Neutral ratings. Investors can find
stronger rosters elsewhere.
Price

To evaluate the cost of investing in an HSA plan,

Morningstar October/November 2017

we began by assessing underlying fund fees.
To make an apples-to-apples comparison across
plans, we calculated the average expense
ratio of each plan's underlying funds in four broad
asset classes: large cap, small cap, foreign
large cap, and intermediate-term bond. To
calculate the average retail fund fee, we used
primarily A share classes, which tend to be
the most widely owned share classes among retail
investors. A shares include 12b-1, or distribution,
fees; in many cases, retail investors can find
funds without 12b-1 fees, but we didn't include
most of those options in the calculation.
Therefore, the median retail fund fee that we
use in this paper has an upward bias.
Average expense ratios across the four broad
asset classes range from 0.05% to 0.99%;
the plans' underlying fund fees compare favorably
versus retail mutual fund peers. However,
HSA plans tack on additional fees that investors
must take into consideration. Most plans
charge maintenance fees to cover general
administrative costs. Moreover, the majority of
plans charge an investment fee to participants
who invest in the mutual fund lineup.
Maintenance and investment fees are
typically dollar-based fees. To incorporate these

expenses into our analysis, we converted
dollar-based fees to percentage terms, assuming
an account balance of $15,000, which,
according to Devenir, was the average balance
in HSA accounts that had investment assets as of
year-end 2016.
We layered each plan's additional fee, in
percentage terms, onto the average underlying
fund expense ratio across the four asset classes to
determine an average total expense ratio for
each plan ( EXHIB IT 5 ). To assess whether these
prices represent a good value proposition, we
compared plans' average total expense ratios with
the median fees charged by similarly managed
retail mutual funds. Plans with below-average fees
versus retail mutual fund peers earn positive
price scores, those with middling expense ratios
receive neutral price scores, and plans with high
expenses garner negative price scores.
Positive
The HSA Authority, Optum Bank, HealthEquity,
and Bank of America boast below-average fees
relative to retail mutual funds, earning those
plans positive price scores. The plans have gained
a cost advantage by offering low-cost index
strategies. HealthEquity has unusually cheap
underlying fund fees, as it uses strictly index funds

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