Should You Change Your HSA Provider When You Change Employers?

Hello folks, I changed jobs in 2022 to a new employer, which had a tangible impact to my previous employer-sponsored Health Savings Account (HSA). My old HSA was at a company called Payflex. However, once I left my job, Payflex started charging me small monthly fees. This is expected, as your employer no longer sponsors (pays for) your account, and they shouldn’t have to because you no longer work there. I had two options. 1. Leave it there and continue to get charged more recurring monthly fees. 2. Open an HSA at Fidelity (or another HSA provider) and move the Payflex account’s assets over. Obviously, option 1 is non-ideal. However, the problem with option 2 was that the index funds I held in my HSA would have to be sold off when we were seeing 2-4% daily fluctuations in the S&P 500. It takes about 4-6 weeks to move assets over from Payflex to Fidelity. If the market moves up between the time of selling off index funds at Payflex to the time of buying index funds at Fidelity, I could have lost a significant amount of money. This is because Payflex has to liquidate (sell) shares and convert them to cash. Unfortunately, they aren’t able to do a direct transfer of shares like taxable brokerage accounts. Payflex's customer support is a bit non-ideal. They have downsides like limited fund options, requiring you to keep $1,000 in cash (uninvestable), and slow response times. One year, I had a slight over-contribution to my HSA. I notified them in December (immediately) to return the excess contribution to me. Checks were supposed to be issued in 10 weeks. They had me waiting almost until the tax filing deadline until they returned the excess contribution. I called them weekly (because I don’t mess with the IRS) about the status of the refund. Once, they told me the return check would be in my hands by February. Then, they said they lost it. Then, they said it got delayed. However, if they hadn’t finally fixed the problem in the last minute, the IRS would have considered me at fault and not Payflex (even though it wasn’t my fault). This had to be done because Payflex, unlike my employer-sponsored 401(k), doesn’t stop you from over-contributing. There is no contribution cap in place, which means all employees that over-contribute are subject to IRS penalties and fines. The IRS charges you a 6% excise tax each year until you remove those excess contributions from your account or apply it to a future year. When Payflex liquidated my shares to do the transfer, no one could tell me when the shares were liquidated, what price they were liquidated, and how many shares were liquidated. For example, 152 shares of VFIAX were sold on 11/18/2022 at $178/share. This occurred in November, and I still don’t have an answer. Hopefully, this will be on their tax forms come February. On the other hand, Fidelity has exceptional customer support, doesn’t require you to hold $1,000 in cash (your entire balance is investable), and you have access to all their index funds (like FSKAX). It probably isn’t worth the trouble to transfer assets over to Fidelity while your employer is sponsoring your account due to the 4-6 week lag time. As long as you review your HSA contributions at least quarterly, you should be in the clear with regards to excess contributions. When you invest using your employer sponsored account, your contributions to HSA are categorized as pre-tax deductions on your paycheck. If you make a direct contribution from your bank account, you get the money back when filing taxes (federal taxes); however, you lose the money that was taxed to pay for Medicare and Social Security. That is not something that is able to be paid back. Gotta love our government! This is why I always prefer to use my current employer-sponsored HSA, also Payflex, in this case. Another point to note is that HSA operates much like a traditional 401(k) if you wait until age 65. If I have small healthcare expenses, I pay those in cash. If you wouldn’t sell off stocks in your 401(k) for a $100 healthcare expense, it would be prudent to do the same with your HSA. The hope with HSA is that by having your contributions invested, they will grow to several hundred thousand dollars by the time you actually need them. The reason I save so much in HSA is because none of us are immortal (hedge against mortality). HSA is meant to pay for large expenses or large out-of-network expenses. This would be like not knowing that you are seeing an out-of-care provider at an in-network hospital (balance billing, which has since been remedied by the No Surprises Act of 2020). However, I wouldn’t be surprised if there are some situations that fall outside of this legislation and through the cracks. It is quite shocking to me that we were expected to know if our anesthesiologist was in-network, especially if we were already under. Large expenses might include things like heart attack, stroke, or cancer. But Mandeep, you have an out-of-pocket maximum. Why would you need to worry about this?! This is because certain aspects of care involve out-of-network clinicians/procedures/therapeutics. Of course, you won’t know this at the point services are rendered until you get the bill several months later. Can you imagine what it would be like going to the pharmacy and not knowing if your co-insurance responsibility is $5 or $5,000 and getting billed two months down the line? In pharmacy, as healthcare consumers, we know this at the point-of-sale (POS). Sure, with the medical benefit, it’s a bit more complex. What if you have a complication during surgery? That wouldn’t be knowable prior to doing the surgery, so it is somewhat understandable. However, there could be a range for medical procedures. Pre-authorization is a great first step to alleviating the anxiety of medical benefit expenses, but there are several opportunities to improve the benefit from a consumer standpoint, in my opinion. I realize this is coming off as slightly morbid. My intention is not to cause you anxiety; this is just meant to temper expectations with regards to health insurance coverage and get your gears turning with regards to preparation/strategy. In my opinion, it is a good idea to prepare for the worst while expecting the best. I wish you good health - both physical and financial in 2023 and beyond. May your portfolios be large and your stresses minimal :)

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Disclaimer: The article above is an opinion and is for informational/educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. The author has taken care in writing this post but makes no expressed or implied warranty of any kind and assumes no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of this information.