How to invest in your health care
Banks have embraced HSAs, and banking industry experts say the plans could become a big business for Wall Street, just as 401(k)s did. Banks earn money just by opening the accounts for employees and charging fees on the debit cards tied to them.
They also earn a fee, typically 1 percent, for managing the mutual funds where people invest HSA money. Of the $18 billion Americans have set aside in HSAs, $2.3 billion will be invested this year, according to Devenir. The amount invested five years ago was just a tenth of that, $200 million.
Devenir’s President and Co-Founder Erik Remjeske estimates that HSAs have generated revenue of about $200 million for the industry in the past year, including all the fees from investing to administration.
Wells Fargo has been offering HSAs since they were created 10 years ago as part of the 2003 Medicare overhaul. Wells Fargo’s Ryan says the bank handles more than $1 billion in assets in HSAs, spread across 400,000 accounts. While most of Wells business is handling HSAs for employers, there is a growing business of individuals opening the plans, Ryan says.
"They may have purchased insurance on their own, and they may already be banking with Wells Fargo, so it’s a natural progression because they have other financial products with us," she says.
Of the people who have an HSA, 56 percent are below the age of 45, according to a 2012 survey by JPMorgan Chase, which also offers HSA plans. Only two percent of JPMorgan’s customers over 65 have an HSA.
Their overall use remains small. Industry observers say HSAs have two large hurdles to overcome: Most people find HSA-HDHP plans confusing or believe the plans don’t offer enough coverage, and HSAs can only be used with high-deductible health plans, restricting their use.
If you get an HSA, it should not be used the same way as an FSA, experts say.
FSAs are designed to be used up each year. While it’s OK to spend a part of your HSA, the long-term goal should be saving for future medical expenses.
Experts warn that HSAs are not a good choice for individuals who are chronically ill because those people will burn through the money, eliminating a chance to invest it.
Once the HSA reaches the $2,000 threshold, it can be invested. However, it’s important to invest HSA savings more conservatively than in an IRA or 401(k), experts say. Medical expenses can come up unexpectedly and you may need the money quickly.
Unlike a FSA, HSAs carry over year to year, so any money put in is yours to keep. If you reach 65 years old and find yourself with too much money in an HSA, you can start using it for non-medical expenses. However, you’ll lose the tax-free withdrawal benefit and will have to pay income tax on it.
Keep at least a portion of an HSA equal to your health care plan’s deductible in cash or a money market fund, experts say. That way, if the stock market falls, at least the amount needed to cover your deductible won’t be at risk.
"Know that what you’re investing is part of your family’s health insurance," says Carnegie Mellon’s Haviland. "You don’t want to gamble."