Changing Your Job = Changing HSA Provider? No, but It Might Make Sense

You usually don't have to roll over your Health Savings Account balance to a new provider when you leave employment or switch medical coverage. But you might benefit from doing so.

We are a mobile society, and never has our work mobility been more volatile than during the last year. The pandemic and efforts by politicians to reduce the impact has led to millions of Americans' losing their jobs. The employment numbers look much better nearly a year into the pandemic - most states' unemployment rates are less than they were four years after the recession of 2008 ended - but the past year certainly has taken a toll.

What happens to workers who are laid off and participate in employer benefits programs? Each program is different.

Ownership of Employee Benefits

Health FSA participation generally ends (although some participants are entitled to COBRA continuation, and employers more recently have been given the power to permit former employees to continue to participate). They can't transfer their balance to a new employer, open a Health FSA outside of an employer arrangement, or (in nearly all cases) continue to spend up to their annual election amount.

Health Reimbursement Arrangements, or HRAs, are usually integrated with medical coverage. COBRA-eligible former employees have the option to continue coverage on both the medical plan and the HRA (separate elections). In nearly all cases (designs vary), they can't spend funds from the HRA for qualified expenses other than their cost-sharing on the medical plan, so their balance isn't portable unless they elect COBRA on both the medical plan and the

401(k) plans are employer sponsored. Former employees can leave their funds where they are or move them to a rollover IRA (which they own and control) or a new employer's 401(k) plan (a program that the employer owns, but employees have ownership of their balances and control the investments).

Health Savings Accounts are different from these other plans (though they resemble the 401(k) plans in many ways. Health Savings Accounts are individually owned. Employees, not employers, own the individual accounts - even if employees establish the accounts through their (now former) employer's vendor partner. When employees are no longer working, ownership of the accounts doesn't change. In nearly all cases, the Health Savings Account provider allows employees not affiliated with an employer partner to maintain their accounts, though often on different terms from active employees.

Health Savings Account Strategies

Unless the account provider chooses not to manage accounts once employees are no longer employed by a client (or are longer eligible to fund an account - perhaps by enrolling in Medicare or switching medical coverage at open enrollment), you can keep your account with that provider.

But beware of new terms. You might be assessed a monthly fee that your employer paid when you were eligible to fund your account. If you have a $4,000 balance and pay a $4 monthly fee, that $48 annual total represents 1.2% of your account balance. That may not seem like much, but it's probably about 10 times the amount that you earn in interest in the current environment.

Your best bet may to transfer your balance to another HSA provider. You don't have to be eligible to contribute to move your balance. Look for an account that has no fees or other features that are important to you - a debit card, a wide range of investment options, etc.

My balance that I accumulated through an old employer (details of my Health Savings Account balances' journey below) is now held in an account with no admin fees, thousands of investment options, and (as far as I know) no debit card. These features fit my needs. Yours may be different.

If you're a transactor who plans to spend down your balances, an easy-to-navigate web site, a debit card, and the ability to request reimbursements that are direct-deposited into your personal account may be appropriate. If you plan to build your balances, then no fees, a robust investment portal, and easy navigation to trade stocks and mutual funds may be more salient features.

You know your needs. You simply need to do a little homework to match what you need with what an administrator offers.

One Owner's Journey

I've owned five Health Savings Accounts during the last dozen years. Perhaps my experience will shed light on the flexibility that you have.

I started with PROVIDER A, who was my then-employer's partner. I contributed for two years and had close to a five-figure balance. Then, my former employer chose a new partner, PROVIDER B. My employer, like most companies, works with only one partner at a time. If I wanted to receive the company's $1,000 contribution or make pre-tax payroll deductions, I had to work with PROVIDER B, which wasn't a problem.

But I had to decide what to do with my $9,000+ balance with PROVIDER A. I did nothing for a year or two. I met PROVIDER A's threshold to have fees waived, so it cost me nothing to keep the money where it was. Eventually, I decided to consolidate my balances with PROVIDER B. I contacted PROVIDER A, who informed me that it would charge a $25 account-closing fee (which is standard in the industry). That account had a checkbook attached (this was a decade ago - hard to find an account that offers paper checks today), so I wrote a check for my entire balance (leaving a few pennies in the account to make sure the check didn't bounce) to PROVIDER B. I had to maintain meticulous records, since the distribution looked like a withdrawal to PROVIDER A.

When I left that company, I kept my $35,000 balance with PROVIDER B and opened a Health Savings Account with PROVIDER C, my new employer's partner. I was happy with PROVIDER B's investment options and didn't pay any fees, so I saw no need to move my balances. Then, PROVIDER B began to restrict investment options and attaching fees to investments in some funds. So, I requested a $48,000 distribution, which I had sent electronically to PROVIDER D.

I chose PROVIDER D because it has a brokerage platform through which I could buy thousands of mutual funds and common stocks. I wanted that level of freedom so that I could invest in options beyond PROVIDER B's limited mutual-fund menu.

In a stroke of pure luck, I liquidated my PROVIDER B mutual-fund investments shortly before the stock market crash at the beginning of the pandemic. I moved the funds to PROVIDER D just as the market bottomed out.

PROVIDER D is a TOP 5 administrator in terms of accounts and assets managed, and it regularly is cited as one of the best in the business. But I had problems. I had to e-mail a form three times to set up my brokerage account. Then, the navigation between the account and the brokerage platform wasn't intuitive.

I quickly moved my balance to PROVIDER E, a well-known national retirement company with a great Health Savings Account. This time, I paid the $25 fee to have my full balance electronically transferred from PROVIDER D to PROVIDER E. That $25 fee included labeling the withdrawal as a transfer rather than a distribution, which may save me some time if my personal income tax is audited. In my prior transactions, which were labeled distributions, I'll have to produce a paper trail showing that the money distributed from one account equals the amount deposited in a new Health Savings Account.

I'm very happy with PROVIDER E, which also manages some of my retirement savings, as well as my wife's Health Savings Account, rollover IRA, and Roth IRA. With a click of a few buttons, I can see five account balances in about 75 seconds.

Meantime, I also maintain my Health Savings Account with PROVIDER C, my current employer's partner. I want the tax savings associated with pre-tax payroll contributions. My employer and I each save more than $500 annually in payroll taxes.

The Bottom Line

You don't lose your Health Savings Account balance or access to it if you lose your job. You can do nothing and still own and manage your account. But beware of fees, as they may slowly but consistently deplete your accumulated medical equity. Assess your needs, do some homework, and find an account that works best for you.

I'm director of strategy and compliance at Benefit Strategies, LLC, a provider of Health Savings Accounts and other tax-advantaged benefits. You can read my biweekly Health Savings Account GPS blog and subscribe by clicking here and my weekly HSA Monday Mythbuster and HSA Wednesday Wisdom columns, as well as my occasional Healthcare Update column, on LinkedIn. My book, HSAs: The Tax-Perfect Retirement Account, is the definitive guide to navigating the intersection of Health Savings Accounts, Medicare, and retirement planning. It's available in book and e-book forms from Amazon.

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