Morningstar also reported that fees can play a role in HSA investing attractiveness. "They can be discouraging," Carlson said. "We have seen them come down" since Morningstar began reviewing accounts in 2017, especially maintenance fees.
Morningstar's October report noted that total fees ranged from 0.31% (Fidelity Investments) to 0.81% (Saturna Capital) with an average of 0.59% based on an assumption of a $14,000 investment account balance and a $2,500 spending account balance.
Total fees include underlying fund fees plus additional maintenance, custodial and investment fees. The underlying fund fee is the average expense ratio of the funds each provider offers account holders.
Seven providers don't charge maintenance fees, six don't charge investment fees and five don't charge custodial fees. Two providers each charged six fees; another charged eight, the report said.
Fidelity only charges an underlying fund fee, which is just above the group underlying fund-fee average of 0.29%.
Over the last four years of annual Morningstar HSA reports, Fidelity was the only provider to earn a "high" rating for Morningstar's assessment of investing accounts. During this period, Fidelity also was the sole winner or tied with others for the "high" rating for spending accounts.
Among 3 million HSA accounts, 20% of participants have investments, which represent 49% of HSA assets, said Karen Volo, a Fidelity senior vice president and head of health and benefit accounts. Fidelity's HSA assets have grown steadily to $19.8 billion in June 2023 from $3.56 billion in December 31, 2018.
Fidelity's investment participation rate is similar to those in the PSCA survey: 18.7% in 2022, 21.5% in 2021 and 19.3% in 2020.
However, Fidelity's investing asset percentage was well above what PSCA found: 27.8% in 2022; 27% in 2021; and 28.7% in 2020.
"People come to Fidelity for investing," Volo said. Fidelity's HSA no-additional-fee approach started in 2019 when Fidelity introduced no-commision trading.
Participants in a Fidelity HSA can choose from three investment styles: a managed account, a self-directed brokerage account, and a model portfolio of more than 35 active and passive funds chosen by and monitored by Fidelity.
The no-additional-fee rule applies to the brokerage account and the model portfolio. For the managed account, there is no extra fee for accounts under $25,000 and a 0.35% fee for $25,000 and above. A Fidelity brochure says the managed account is intended for participants investing three years or more.
Volo said the a top goal for Fidelity is educating participants how HSAs play a role in investing for their financial future.
The biggest challenge is explaining the difference between a health savings account and a flexible savings account. "Carryover is the biggest point of confusion," said Volo, referring to the HSA accounts being held over for succeeding years while FSAs impose a yearly use-it-or-lose-it policy with no carryover.
FSAs aren't investment vehicles. Participants don't pay taxes on their FSA accounts, which can be used to pay certain medical and dental expenses.
Fidelity' conducts education throughout the year via webinars, email campaigns and mobile app information. "It's not just open enrollment," Volo said.
Comprehensive and extended education is endorsed by HSA consultant Ramthun, who lamented that sponsors and providers don't provide enough information. During open enrollment, "you spend an hour talking about insurance, and with 30 seconds left you talk about HSAs," he said.
"Employers need to follow up annual discussions" about health benefits by "bringing HSAs into the discussion," he said. "HSAs should be part of the retirement education."