Psst TPAs! Your HSA Tech Partner May Be Taking Your Revenue
Three Industry Secrets that Erode TPA Revenue
Health savings accounts (HSAs) have gained popularity as a tax-advantaged way to save for medical expenses and have become a sought-after product for administrators to offer clients. The triple tax advantage offered by these accounts to pay for out-of-pocket medical expenses creates an amazing benefit for employees and helps reduce medical costs for employers. In addition, the ability to roll these funds over each year to save tax-free for medical expenses in retirement can have a massive impact on an employee’s long-term financial health.
However, there is a not-so-secret industry secret: hidden costs associated with many HSA programs can significantly impact not only account holders' balances —but if you are a TPA offering HSAs as part of your solution suite— your business long term.
In this blog post, we'll shine a light on three major HSA fees that impact the long-term profitability of your offerings and could be eating into your ability to effectively compete in the current market.
1. HSA Account Closure Fees - Akin to Surrender Charges
You may not realize it, but HSA account closure fees are essentially the equivalent of surrender charges found in annuities or Class B mutual fund shares. These fees are incurred when you decide to move your HSA to a different provider or close the account altogether. While it might seem like a minor cost, it can add up over time, diminishing the returns you've worked so hard to accumulate. Many HSA platform partners charge $25 dollars or more to simply move money out from under their administration—meaning your business is locked in unless you are willing to pay an exit fee.
If you’re a TPA offering HSAs, this account closure fee creates a massive liability on your balance sheet if you’re looking to move providers. As you grow, the amount of this liability just continues to increase. The result is that it can be financially impossible to move from your current platform partner without major cost.
2. Terminated Account Fees - Paying for Inactivity
On the consumer side of the coin, if an account holder is not looking to move an HSA but has changed employers or no longer has access to a qualifying high-deductible health plan, some HSA platform providers will impose terminated account fees. These fees can range from $2 to $4 per month (or more!), and they can persist for as long as the account remains inactive. It's like paying a subscription for an account you're not even using, and it's silently eroding HSA savings. On a $1,000 balance that can work out to $24 to $48 dollars per year.
Not only does this nonsensical fee hurt the consumer, it also hurts your ability as a TPA to retain business and grow assets under management.
3. Investment Fees - Opaque and Costly
While many people focus on the tax advantages of HSAs, the investment fees associated with these accounts often fly under the radar. These fees are generally not clearly disclosed, making it challenging to gauge their impact on long-term returns. As a TPA, when constructing your HSA solution, if you choose to add on services like investment advice or managed accounts, the costs can easily double or even triple, further eating into your consumers’ potential gains.
For example, many platform providers include an investment fee of 50 basis points (bps), or .5% for their managed (“guided”) investment option, charged directly to the consumer. This works out to $25 on an investment balance of $5,000. While that seems small, it becomes more significant over time. In 20 years, this consumer will pay $1,211 in fees on that $5,000. Compared to a lower fee solution at 25 basis points, that same consumer would pay only $614 – a difference of $597.
Let’s look at how those fees affect account growth. Over 20 years, if that consumer adds $1,200 annually and has a 6% rate of return, the investment charging a 50 bps fee will grow to $56,431, while the investment with the lower 25 bps fee will grow to $58,271, a difference of $1,840.
It’s important that TPAs understand the full spectrum of fees that come with HSA investments to make informed decisions about program structure and help maximize both returns for consumers and revenue for their HSA program.
So what is the solution?
While HSAs offer valuable tax benefits, it's essential to be aware of the less visible fees that can affect your returns and erode your account holders’ balances. Whether it's the surrender-like closure fees, terminated account fees for inactivity, or the often-concealed investment fees, these costs can slowly drain your HSA savings. To make the most of your HSA program, evaluate your platform provider's fee structure and consider exploring options with lower fees and better transparency.
Own Your Fees
At Elevate, we don’t tether our customers with fees that require them to pay to leave, nor do we look to profit off our partner’s relationships with their customers. Our platform gives you the control to set fees that make sense for your business and does not lock you in as a customer of ours. Providing smarter, integrated, configurable and modern solutions is at the heart of everything we do at Elevate.
Let’s talk. Request a demo.
About Keith Soranno
We're pleased to have Keith provide this guest blog. In addition to occasionally blogging, Keith brings his extensive background in the employee benefits and financial services industries to Elevate as EVP of Sales. Keith combines his expertise in solution selling, partnerships, and business development with a genuine passion for creating strategic solutions, working tirelessly to help craft the perfect solution for our client partners.
Follow Keith on LinkedIn.