Uncertain Prognosis for Health Accounts
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 included a new program for advocates of “consumer-driven health plans.” Health Savings Accounts (HSAs) are tax-free accounts that can be used for healthcare expenses. (In Maine, contributions to these accounts are subject to state taxes.) Unlike Flexible Spending Accounts (FSAs), these accounts have no “use it or lose it” provision, and are fully portable. Many have likened them to IRAs. HSAs can only be established by people who are covered by High Deductible Health Plans (HDHPs), a new “term of art” defined by the legislation.
HSAs have been available since January 2004, but have been slow to gain a footing in the marketplace. Most industry analysts believe that significant growth is inevitable, because it will be fueled by the need of private and public sector employers to do something to contend with ever-soaring health care costs.
Show Me the Money
Estimates of the level of assets which will be held in HSAs by 2010 also have a broad range: $10 billion to $62 billion.
Variability of these estimates is tied to both the numbers of accounts and the speculation about how these accounts will be used. Will HSAs be mostly transactional accounts with a relatively low accumulation of assets, or will they be used for investment and asset-gathering purposes? The answer is probably both. Forrester Research recently estimated that 20 percent of account holders will see an HSA as a savings vehicle, 60 percent will use it to cover ongoing medical expenses and 20 percent will do both. How this shakes out will have a dramatic impact on the amount of assets that accumulate over time. To illustrate, one insurance company, American Health Value LLC, estimated that a family putting the maximum funds into an HSA over 30 years could accumulate $200,000 (4 percent interest, no withdrawals). The same scenario with maximum funds deposited, but an average withdrawal of $1,000 per year, would result in an account balance of $138,500 after 30 years. JPMorgan Chase, a large player in the HSA business, said most accounts in 2005 were opened with $1,000-$2,000 and reported an average first-year balance of $1,600.
A Business Opportunity
Do HSAs have the potential to develop into a meaningful business line for community banks? Opinions differ, although all seem to agree that if the potential is there, profitability will be a long-term proposition. Issues to consider:
•Unlike the IRA, HSAs can be drawn down at any time for healthcare expenses. But your customers will likely expect a range of investment alternatives, especially as their balances grow. Banks without broker-dealer subsidiaries or affiliations may have problems in sweeping HSA deposits into other investment instruments.
•Despite the fact the individuals themselves are responsible for complying with the rules of HSAs, many will look to their insurance carriers, administrators and banks for help in avoiding the pitfalls.
•Larger banks are entering the business by partnering with insurance carriers, HMOs and TPAs, and are building technology to provide a seamless experience for customers. Ideally, HSA systems would have the ability to interface with the claims adjudication system of the insurance carrier for automatic referral of balances. Large players are also developing health education tools and data on health-care cost and quality. These additional tools are viewed as important ways to help employees be better consumers of healthcare.
•It may be difficult for banks to make a profit on HSAs without the economies of scale that large volumes bring. HDHPs and HSAs will largely be employer-driven. Employers will look to their carriers or administrators to identify banking partners who are prepared to deliver products to their employees.
•While the ultimate selection of the HSA trustee or custodian is the employee’s decision, an arrangement that is available with pre-tax payroll deductions is likely to be preferred over one where the individual has to reconcile the contributions to an HSA at tax time.
Who’s in the HSA Market?
At least two insurance companies have recently started their own banks to facilitate the administration of health savings accounts. United Health Group owns Exante Bank, and Blue Cross Blue Shield Association just chartered a bank that they will use in connection with individual Blue Cross and Blue Shield plans to offer HSAs (Anthem Blue Cross and Blue Shield has partnered with JPMorgan Chase for these accounts). Other large banks in the business include Webster Financial Corp.’s HSA Bank, Wells Fargo and Mellon Financial Corp. These large banks have the advantage of working directly with insurance companies, HMOs and TPAs; however, it is believed that insurance companies negotiate with these large banks to prohibit them from cross-selling products to customers. (The insurance companies are interested in protecting this business for themselves.) A number of community banks have taken the plunge and offer HSAs; some tout “no start-up or monthly fees” as their differentiating value proposition. Locally, a number of community banks make these programs available.
Smaller banks may seek help from an experienced technology partner. Two bank core processors have announced turnkey solutions for community banks: Fiserv’s ITI and Metavante. Metavante claims to be working with approximately 400 banks. These banks are reported to have 500-1,000 HSA accounts per bank. BISYS offers forms and other resources, but not technology.
The Jury Is Still Out
Within the Maine Financial Institutions Employee Benefits Trust, we made an HDHP plan/HSA option available at our July 2005 renewal. None of the Trust participating banks elected to offer the program, although we are working with some members who hope to make these plans available in the future. Another reason employers and banks may be sitting on the sidelines is the uncertainly about federal statutory changes which could affect these accounts. Stay tuned!
For more information, contact Kathleen Meehan, senior vice president, Maine Association of Community Banks.