Morningstar Releases Eighth Annual Study on Advancements and Opportunities in Health Savings Account Industry

Rhea-AI Summary

Morningstar has released its eighth annual study on Health Savings Accounts (HSAs), evaluating 11 top providers for both investment and spending use cases. The study reveals significant improvements in HSA features, including lower fees and better investment options. However, only four providers received an Above Average or better rating for both use cases.

Key findings include:

• Total HSA assets reached $123 billion in 2023
• Fidelity leads providers with a High assessment for both spending and savings accounts
• HSA contribution limits are set to increase in 2025
• Providers' investment menus are strong, with at least 89% of each lineup consisting of funds with Gold, Silver, or Bronze Morningstar Medalist Ratings

The study emphasizes the need for improved transparency and participant awareness to maximize HSA potential.

Positive

• Total HSA assets reached $123 billion in 2023, showing strong growth
• Fidelity offers a high 2.69% interest rate on all balances, outperforming competitors
• HSA contribution limits are set to increase in 2025, enhancing tax advantages
• At least 89% of each provider's investment lineup consists of highly-rated funds
• Four providers received Above Average or better ratings for both investment and spending use cases

Negative

• Only four out of eleven providers received Above Average or better ratings for both use cases
• Transparency issues and hidden costs continue to pose challenges for investors
• Many providers impose minimum account balance requirements before allowing investments
• Automatic enrollment in HSAs is not permitted by the government, unlike retirement plans

Insights

Financial Analyst

The release of Morningstar's eighth annual HSA study highlights significant growth and improvements in the HSA industry, which could have positive implications for MORN's business. The study's findings of total HSA assets reaching $123 billion in 2023 indicate a robust market that Morningstar can continue to analyze and provide insights on, potentially driving demand for their research services.

Morningstar's role in assessing HSA providers positions them as a key authority in this growing financial sector. This could lead to increased recognition and potentially more business opportunities in the HSA space. The comprehensive nature of the study, covering 11 top HSA providers, demonstrates Morningstar's extensive reach and expertise in this area.

The inclusion of a new provider, NueSynergy, in the study shows Morningstar's ability to adapt to market changes and maintain relevance. This adaptability is important for maintaining their position as a leading provider of independent investment insights.

While this news doesn't directly impact Morningstar's financials, it reinforces their brand as a trusted source of financial analysis, which could indirectly contribute to long-term growth and stability in their core business of providing investment research and tools.

Market Research Analyst

The HSA industry's growth trajectory presents a significant opportunity for Morningstar to expand its influence and revenue streams. With HSA assets surging to $123 billion, there's an increasing need for expert analysis and guidance, which Morningstar is well-positioned to provide.

The study's findings on provider improvements, such as lower fees and better investment options, indicate a maturing market. This maturation could lead to more sophisticated products and services, potentially increasing demand for Morningstar's expertise in evaluating and comparing these offerings.

The highlighted areas for improvement, such as transparency issues and hidden costs, present opportunities for Morningstar to further establish itself as an advocate for investors. By addressing these challenges in their research, they can enhance their value proposition to both individual investors and institutional clients.

The potential legislative changes mentioned, such as increased contribution limits and new rollover options, could further accelerate HSA adoption. This would likely increase the importance of Morningstar's HSA research, potentially leading to higher demand for their services and strengthening their market position.

Assessments of the leading providers highlight continued progress and identify areas for significant improvement

CHICAGO--(BUSINESS WIRE)-- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment insights, today published its eighth annual landscape study on health savings accounts (HSAs) available to individuals. The study assesses the current state of the HSA industry and releases Morningstar's assessment of 11 of the top HSA providers on two different use cases: 1) as investment accounts to save for future medical expenses and 2) as spending accounts to cover current medical costs.

Overall, the study found meaningful improvements in HSA features, such as lower fees and better investment options. However, Morningstar highlights substantial room for growth in the industry, with just four providers receiving an Above Average or better rating on both evaluated use cases.

"Efforts by providers to enhance HSA offerings have proven beneficial for investors," said Greg Carlson, senior manager research analyst. "Nonetheless, transparency issues, including hidden costs, continue to pose challenges for investors as they navigate their healthcare finances. Our study underscores the progress made while highlighting the hurdles that need to be addressed for HSAs to achieve their full potential."

Highlights from the study include:

• Total assets in HSAs soared to $123 billion in 2023, maintaining their strong growth trajectory. This growth is driven by the increased prevalence of high-deductible health plans (HDHPs) since HSAs were introduced.
• Fidelity continues to lead among providers, earning a High assessment for both its spending account and savings account features. Notably, it offers an interest rate of 2.69% on all balances, far surpassing other providers, none of which offer more than 1% on any balance level.
• HSA contribution limits are set to rise in 2025, bolstering their already outstanding tax advantages, which are superior to 401(k)s, IRAs, and 529 plans. Proposed legislation would also allow individuals to contribute to an HSA even if their spouse uses a flexible spending account (FSA) and enable certain fund rollovers from FSAs into HSAs.
• Providers and regulators could improve participant awareness and simplify processes to increase engagement in HSA features. For instance, unlike retirement plans, automatic enrollment in HSAs is not permitted by the government. Furthermore, many providers impose minimum account balance requirements before participants can invest.
• From 2019 to 2022, several acquisitions among key players in the space led to significant consolidation among HSA providers. Recently, the pace of such deals has slowed, marking a noteworthy shift in the industry landscape.
• Providers' investment menus are strong, as evidenced by the Morningstar Medalist Rating. At least 89% of each lineup consists of funds with Gold, Silver, or Bronze ratings.

The overall assessment of each HSA provider is listed below.

HSA Provider	Overall Assessment as Investing Account	Overall Assessment as Spending Account
Associated Bank	Average	Average
Bank of America	Average	Below Average
Fidelity	High	High
First American Bank	Average	Above Average
HealthEquity	Above Average	Above Average
HSA Bank*	Above Average	Above Average
Lively	Average	Above Average
NueSynergy	Above Average	Average
Optum	Average	Below Average
Saturna	Above Average	Above Average
UMB	Average	Above Average
*HSA Bank is Morningstar, Inc.’s HSA plan provider.

This year's study included one new addition: NueSynergy, a business service provider that is expanding the reach of its HSA offerings to a national level. Morningstar does not assess HSAs offered by employers, as details can vary depending on relationships and headcount.

Click here to read the HSA Landscape Report, which includes complete assessments for the 11 providers and methodology. An article on Morningstar.com summarizing the report’s findings is available here.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and solutions that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $316 billion in AUMA as of June 30, 2024. The Company operates through wholly owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on X (formerly known as Twitter) @MorningstarInc.

Morningstar’s Manager Research Group

Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar Manager Research provides independent, fundamental analysis on managed investment strategies. Morningstar views are expressed in the form of Morningstar Medalist Ratings, which are derived through research of three key pillars—People, Process, and Parent. The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. A global research team issues detailed research reports on strategies that span vehicle, asset class, and geography.

Medalist Ratings are not statements of fact, nor are they credit or risk ratings, and should not be used as the sole basis for investment decisions. A Medalist Rating is not intended to be nor is a guarantee of future performance. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2024 Morningstar, Inc. All Rights Reserved.

MORN-R

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Morningstar Media Contact:

Michael Claussen, +1 312 696-6037 or newsroom@morningstar.com

Source: Morningstar, Inc.

FAQ

What were the key findings of Morningstar's 2023 HSA study?

Morningstar's 2023 HSA study found that total HSA assets reached $123 billion, Fidelity leads providers with high assessments, HSA contribution limits will increase in 2025, and providers' investment menus are strong. However, only four out of eleven providers received Above Average or better ratings for both investment and spending use cases.

How did Fidelity perform in Morningstar's HSA provider assessment?

Fidelity received a High assessment for both its spending account and savings account features in Morningstar's HSA study. It offers an industry-leading interest rate of 2.69% on all balances, significantly outperforming other providers.

What improvements and challenges did Morningstar (MORN) identify in the HSA industry?

Morningstar identified improvements in HSA features such as lower fees and better investment options. However, challenges remain, including transparency issues, hidden costs, and the need for improved participant awareness and simplified processes to increase engagement in HSA features.

How many HSA providers received Above Average or better ratings in Morningstar's 2023 study?

In Morningstar's 2023 HSA study, only four out of the eleven evaluated providers received an Above Average or better rating for both investment account and spending account use cases.