Q: What opportunities do health savings accounts (HSAs) offer banks?
Doug Marrs, Great Southern Bancorp: Health savings accounts provide an important service for customers with high-deductible healthcare plans. It helps these customers save in a tax-advantaged way to help meet future medical expenses. The need for HSAs is growing as more employers move to high-deductible health plans (HDHPs). We began offering HSAs, first and foremost, as a meaningful service for customers with HDHPs. Offering this product gives our company a competitive advantage in the marketplace and provides an opportunity to attract new deposit relationships and deepen existing customer relationships.
Jim Baron, Huntington Bank: By providing HSAs to business banking customers, we give them the opportunity to lower the cost of providing health insurance to employees, provide an added benefit to employees at no cost and take the administration work out of their benefits department. Customers see HSAs as a financial product, not a healthcare product. They also want to open an HSA with their local bank -- an institution they can trust and with whom they have done business. Additionally, small businesses want to offer HSAs to be more competitive when recruiting employees. The opportunity to grow deposit balances with HSAs is enhanced by employer contributions. More and more employers are funding HSAs on behalf of their employees, a trend which promises to increase average balances even more in the future. In addition, the recent rule change that allows rollovers from an IRA into an HSA has provided a source of added balance growth.
Kirsten Trusko, BearingPoint: This is the first major, new opportunity for banks in decades. By 2012 there will be an estimated 30 million HSAs with $325 billion in deposits contributing to $7 billion in consumer-directed healthcare (CDH) revenue. This money will be dispersed among divisions throughout commercial, retail and investment banks. Because HSAs have tentacles back to commercial and retail customers, these accounts deepen across spending, saving and investing functions, making stickier existing relationships and potentially attracting new clients seeking full-service offerings in health banking.
Dana Gould, Financial Insights: The balances on HSAs are accumulating, but consumers don't do a lot of transactions on them -- they are not very active accounts. And because these accounts are established through employers, banks won't have to do a lot of customer service on them. Banks can make money off the deposits; HSAs offer a good opportunity to gain new customers; and because this type of account is a retirement account as well as a health fund, people will not tend to move these accounts around from place to place, so they're more stable.
Q: What are the technology requirements for banks looking to compete in the HSA space in terms of processing, security, reporting and records management?
Marrs, Great Southern Bancorp: Before launching our HSA product to the marketplace, our software vendor provided in-depth training to our staff to ensure compliance with processing standards, security, reporting and records management. Our goal was to have certain staff members become HSA subject experts from the beginning because we anticipated many questions about the product. Our HSA experts then trained our front-line associates on the product.
Baron, Huntington Bank: Customers are demanding all the usual bells and whistles that come with their other bank accounts, including debit cards, checks, online access to accounts, and ATM and branch access. Banks need to be prepared to service the customer in whatever channel the customer prefers. These accounts are transactional in nature and cannot be serviced like an institutional product, such as a 401(k).
Trusko, BearingPoint: Most regulations have been geared toward making HSAs simpler in order to attract more banks, rather than adding complexity. Security concerns of incremental health data have largely been addressed by banks' compliance officers, confirming they are or are not HIPAA-covered entities (which is largely driven by the degree of integration to the insurance carriers and the data that entails). For noncovered entities, banking security capabilities have been deemed adequate. For covered entities, banks have developed specific manners of addressing this incremental security area. Reporting on HSAs is defined by the IRS and is very similar to [the process for] IRAs/401(k)s. Thus, most banks are leveraging these existing capabilities to fulfill HSA requirements.
Gould, Financial Insights: The best way for banks to meet technology requirements would be to partner with someone already doing HSAs, such as HSA Bank [Sheboygan, Wis.; a division of Webster Bank], for instance, or a technology company. There are plenty of software companies out there to help in the security, processing, records management and reporting. I believe there will be little need for customer-facing technology, since these accounts are typically managed through employers.
Q: What are the success factors for banks competing in the HSA space, specifically in the areas of technology and in meeting regulatory and legal requirements?
Marrs, Great Southern Bancorp: To be successful in the HSA space, banks must understand the product software and the product's legal and regulatory requirements, and stay updated on changes and communicate these changes to customers and front-line associates. End-of-year reporting is a critical piece.
Baron, Huntington Bank: Key to success in the HSA market in terms of technology is designing the customer touchpoints for the account holder and not for the distribution channel, such as a legacy cash management system. Although banks may provide assistance to businesses in using such a cash management system to fund their employees' HSAs, the HSA product itself must be designed for the individual consumer -- for example, with a simple-to-use online enrollment process, online access to accounts and ATM access. Many banks have found that working with an experienced partner can increase time to market on the technology side and also in terms of meeting regulatory/legal requirements, such as tax reporting and transaction coding.
Trusko, BearingPoint: There are two options currently available: outsourcing and building in-house (not licensable software). There are more than 12 vendors that can support HSAs in varying capacities as an outsourced function. This gives speed to market but can present challenges in profitability, differentiation and integration for core banking systems and customer service in the long haul. Banks that are building in-house are finding that trying to use legacy systems not intended to support all facets (deposit, card, investment, loan, carrier interface, etc.) is costly and time-consuming.
Guidance in regulatory and legal requirements is being provided by a number of sources. Those doing this successfully include the ABA's HSA group and a few top law firms that have specialized in this area from the start, which are being retained by many top banks to ease the minds of their compliance and regulatory leaders.
Q: Going forward, will banks be more involved in the health insurance and healthcare market?
Marrs, Great Southern Bancorp: HSAs are an example of how banks can provide helpful interfacing services for customers and their insurance needs. Perhaps more innovative products and services ties with the insurance industry will be developed. But it is unlikely that most banks will become competitors or players in the general insurance space.
Baron, Huntington Bank: Many in the industry believe banks will win in the HSA market, due to the fact that consumers consider HSAs a financial product and prefer their local bank when opening an HSA. And with good reason -- early entries into the HSA market by insurance companies have experienced servicing challenges. Unlike insurance plans, HSAs require expertise in transaction processing and customer service aimed at the individual, rather than the institution. Banks clearly have the advantage in these areas.