Morningstar Magazine - October/November 2017 - 7

Letter From the Editor

HSAs, Exposed

Jerry Kerns

Follow Jerry on Twitter
@jerrykerns

For the first time, Morningstar has shined a light
on Health Savings Accounts. HSAs, as they
are commonly called, are an increasingly popular
way to pay for healthcare expenses as employers
look to shift rising insurance costs onto their
workers. HSAs are attached to high-deductible
health plans, which have lower premiums
than traditional employer-sponsored plans but also
higher out-of-pocket deductibles for employees.
HSAs are billed as a tax-sheltered funding solution
to help workers save to pay for these healthcare
costs. Workers direct pretax money into an
account, it grows tax-free, and withdrawals used
to pay for qualified healthcare expenditures
are not taxed. It's the only savings vehicle of its
kind that is triple tax-advantaged; hence, its
appeal to investors. Workers can put their money
either into a checking or savings account or
invest it for the long term.
Until now, investors had little information
to help them research the quality of these plans.
Hundreds of plan sponsors offer HSAs, but
investors have lacked resources to help them
navigate the offerings. Morningstar took the first
step to change that. A team lead by Leo Acheson,
a senior manager research analyst, recently
finished researching the HSAs offered by 10
prominent plan sponsors. We found most of the
plans lacking in quality and overpriced, which
perhaps isn't surprising for an area of the market
that has avoided the spotlight. Only one
earned positive scores across a series of criteria
the team used to evaluate the design, investment quality, and costs of the plans. Acheson
writes about the research in "Room for
Improvement" (Page 38) in our Spotlight section.
In effect, Acheson has written a step-by-step
guide for plan sponsors on how to create a great
HSA for investors. The ball is in their court.

With their multiple tax advantages, HSAs are
a terrific way to build wealth for those with the
resources to pay for current health expenses
out of pocket now and invest HSA contributions for
the future. But they present some tricky
planning challenges, which Christine Benz,
Morningstar's director of personal finance, tackles
in our opening Spotlight article, "Will HSAs
Live Up to Their Potential?" (Page 35). We close
the section with Paul D. Kaplan, director of
research with Morningstar Canada, providing
background on why U.S. citizens face such
daunting challenges when it comes to healthcare
costs ("What Is Your Healthcare System and
Why Does It Matter?," Page 44). He finds
that nearly all industrialized countries in the world
provide some form of universal healthcare
coverage. The United States is an exception,
Kaplan says, and its employer-insurance model
is the most inefficient healthcare system
in the world.
As Don Phillips writes in his Phillips Curve
column ("Triple-Down Economics," Page 10),
Americans are increasingly betting on
their investments to fund expensive healthcare
costs. This is in addition to relying on the markets
to pay for their retirement and education
needs. That may be risky, but as long as the U.S.
keeps its current healthcare model, HSAs
will grow in popularity by necessity. With
Morningstar casting its eye on HSAs, it's time for
plan sponsors to step up to improve them.

global.morningstar.com/Morningstarmagazine

7


http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017

Contents
Morningstar Magazine - October/November 2017 - Cover1
Morningstar Magazine - October/November 2017 - Cover2
Morningstar Magazine - October/November 2017 - 1
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Morningstar Magazine - October/November 2017 - Contents
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