11.02.09
Sneaky Fees
Health Savings Accounts are neat vehicles. If you’re covered by a high-deductible health insurance plan, you can deposit money into a health savings account and receive a tax deduction for the contribution. If you later take a distribution from the HSA to reimburse or pay medical expenses (dental, optical, prescriptions, whatever), you don’t have to recognize the distribution as income. If you have family coverage, you can deposit $5,950 annually into the HSA. Because many families don’t burn through that much in medical expenses, the unused portion accumulates and earns income.
And that’s where the money-making opportunity comes in. Someone manages those funds. Places like UnitedHealth Group earn money doing it, but the previous arrangements weren’t profitable enough for them, so they took advantage of regulatory changes last January and tripled the annual fees . . . to the detriment of their customers:
UnitedHealth Group controls roughly 15% of the market for HSAs, which it offers through OptumHealth Bank, a wholly owned subsidiary. Until late last year its HSA clients had 11 mutual fund choices from Vanguard Group. Annual fees ranged from 18 cents to 35 cents per $100 invested.
By late 2008 Optum had yanked the Vanguard options for new customers. Funds on the menu now hail from firms like Munder and Thornburg; fees range from 76 cents to $1.37 per $100.
Why the switch? No coincidence, perhaps, that regulatory changes this January enabled entities like OptumHealth and their consultants to start pocketing a cut of fund management fees. Nor, perhaps, is it purely random that many fund firms popping up in HSAs these days kick back fees to plan managers. Vanguard does not pay kickbacks.
Link.
