Seeking to increase spread and fee income, banks have found a tonic in health savings accounts and their massive low-cost deposits.
The benefits may prove short-lived, however, as Congress considers health-care reform.
"There's so much uncertainty about what's going to happen to HSAs — whether they will be boosted, or made more difficult to adopt, or in worst-case scenarios, legislated out of existence," said Alexander Domaszewicz, principal and senior health-care consultant at the consulting firm Mercer LLC.
Deposits in HSAs nationwide as of January were up nearly ninefold from 2005 and 47% from a year earlier, to $6.1 billion, according to the Boston financial research and consulting firm Celent. HSAs are used to fund high-deductible health-care plans.
Banks or credit unions are the main HSA administrators, said Red Gillen, senior analyst at Celent. Though roughly 500 institutions currently offer the product, about a dozen banks dominate this specialized market, including HSA Bank, OptumHealth Bank (a unit of OptumHealth Financial Services), UMB Financial Corp., Wells Fargo & Co., JPMorgan Chase and U.S. Bancorp.
HSAs are a great source of low-cost deposits for banks and also generate fee income, said Gillen, who is based in Portland, Ore. According to a recent Celent survey of 14 of the largest HSA players, 42% of the revenues they had received from the business line as of January came from interest rate spread, 32% from monthly maintenance fees and 12% from interchange fees from debit card use by account holders.
But banks may find themselves on the wrong end of congressional attempts to lower health-care costs. Lawmakers could impose minimum requirements on benefits and they may not count much of the up-front cash in HSA accounts, which would disallow many high-deductible plans and obliterate the need for HSA accounts.
Congress could also impose requirements to substantiate health-care expenditures to minimize fraud, or it could set limits on how much money people can deposit in the tax-free accounts.
Bankers are lobbying lawmakers through the American Bankers Association's HSA Council. One of them, Dean Mason, the chief executive of HSA Bank in Milwaukee, said Congress should encourage the use of HSAs to curb skyrocketing health-care costs.
"Co-pays make people think a little more about avoiding unnecessary care," Mason said, "but when it's 100% out-of-pocket — when it's your own money — you're even more judicious about how it's spent."
HSA Bank, a division of Webster Financial Corp. of Waterbury, Conn., administers HSAs for employers nationwide. The number of accounts that HSA Bank administers rose 16.8% in the second quarter from a year earlier, to 250,000, accounting for roughly $680 million of deposits.
To be sure, congressional action may serve to strengthen HSAs' role in health care.
The accounts could become more attractive if any type of mandate is imposed either on employers to offer insurance to their employees, or to individuals to purchase insurance themselves. Those forced to purchase insurance may opt for high-deductible plans, because the costs are typically less than those featuring lower deductibles but higher premiums, observers said.
If health-care reform results in a substantial rise in HSAs, Dennis Triplett, the president of UMB Healthcare Services, predicts that the business line will still be dominated by a handful of players because of the expertise and scale that is required to make it most profitable.
UMB Healthcare Services is a division of UMB Financial, in Kansas City, Mo. UMB's total HSA accounts in the second quarter rose 25% from a year earlier, to 128,200, accounting for $175 million of deposits.
There are some possible twists to the current reform effort in Congress that may deter HSAs from becoming more attractive, observers said.
Congress may choose to require that all health-care plans in the country have at least a minimum amount of benefits that have yet to be defined, Gillen said.
Yet it may not count the first $1,500 in cash that an HSA account holder would pay out-of-pocket for health-care services as a "benefit."
So if the minimum is set too high, high-deductible plans — and consequently HSAs — could conceivably be disallowed and could be "grandfathered" out of existence.
That would be too bad, said Kristin Korzekwa, vice president of health-care products for SunTrust Banks Inc., which started offering HSAs last December.
Many high-deductible plans fulfill many of the goals of health-care reform, including covering 100% of numerous preventative care and wellness initiatives before deductibles, she said.
If enactment of reform fails, HSAs may still grow in popularity — though at a slower pace, UMB's Triplett said.
