When Wendy Nestrud of Denver went for a dental cleaning last December, she didn’t give a second thought to paying for the exam. After all, she and her husband, Lon, had $2,000 in their health savings accounts (HSA), which allow individuals to set aside pretax dollars for medical expenses.
But when Nestrud, 44, went to pay, her HSA debit card was declined. The couple learned their HSA accounts were frozen, and the money may be gone forever.
In March, the two cofounders of Canopy Financial, which managed the Nestruds’ accounts, were indicted for defrauding investors and “misappropriating” $19 million in HSA funds and flexible spending accounts. Canopy has filed for bankruptcy.
The Nestruds are among at least 1,600 health savings account holders who may be victims. “It’s very frustrating that there aren’t some better protections in place,” says Lon Nestrud, 45.
The trouble is that most bank regulations were established before HSAs existed, says Gail Hillebrand, senior attorney at Consumers Union. If you do go with an HSA, Hillebrand recommends asking in advance what will happen if your money is lost or stolen. Also, she says, look for accounts—known as “pass through”—that are insured individually by the FDIC.
Michelle Diament is a frequent contributor to the AARP Bulletin.