Consumer-directed healthcare is as much about shifting responsibility and cost to consumers as it is respecting their autonomy, and the jury is still out as to which consumers, and to what extent, will benefit from health savings accounts (HSAs). Created in December 2003 as part of the Medicare Modernization Act (MMA), HSAs allow individuals enrolled in high-deductible health plans (HDHPs) to accumulate funds that can be used for health expenses, including those not covered by their health plans, such as dental and vision treatment. What is certain, however, is that the transfer of funds traditionally directed to the payment of insurance premiums into cash accounts presents a potentially huge opportunity for banks.
Some insurers are seeking to offer an end-to-end HDHP/HSA solution by creating their own banks to serve as custodians of the accounts -- notably United Healthcare's Exante and the Blue Cross Blue Shield Association's Blue Healthcare Bank. But given the brand power of established banks and insurers' reluctance to make major investments outside their core competence, most insurers are forming partnerships with eager industry counterparts on the banking side. The challenge for banks is to make health insurers offering HDHPs see the value of what banks can bring to the overall consumer-directed health experience through their ability to manage accounts.
"It is about partnership," says David Josephs, VP and head of consumer-directed healthcare for New York-based JPMorgan Chase ($1.2 trillion in assets). "This is about health plans bringing their core competencies and JPMorgan Chase bringing what it does well together, in partnership, to provide the best solution to the marketplace."
JPMorgan Chase's (JPMC) vision is of an integrated offering in which health plan and banking partners' systems are closely conjoined, and that offers consumers flexibility for disposing of the funds associated with their accounts. The bank's strategy is to seek out health insurer and benefit provider partners willing to make the commitment that such partnerships imply. So far, JPMC has found several such partners, including Cigna (Philadelphia; $44.9 billion in assets), Humana (Lexington, Ky.; $9.6 billion in 2005 operating revenues), Aetna (Hartford; $22.5 billion in total 2005 revenues) and Wellpoint (Indianapolis).
The significance of such partnerships is hard to overestimate. The appearance of HSAs has triggered nothing less than the next wave of financial services convergence, in the view of Alenka Grealish, a Portland, Ore.-based analyst for Celent. During the first wave, caused by the passage of the Gramm-Leach-Bliley Act of 1999 -- which allowed banks, insurers and securities companies to affiliate -- some banks and insurers expanded their product lines. But as Grealish notes in her report, "Health Savings Accounts: How Will the Stars Align?" there was not a great shakeout of consumers' funds.
This time, however, things are different. "The HSA wave is likely to hit health insurers hard, reducing the overall health insurance premium market by as much as 5 percent by 2010 and 10 percent by 2015, converting premium revenues into net interest, account management and fee income," she writes. "All banks stand to gain if they effectively enter the market."
Success will depend on banks' ability to partner with health insurers, since the latter control the relationship with employer benefits administrators, who currently represent the most-important customer-acquisition pipeline. The ability to deliver those customers gives many insurers leverage in forming partnerships as HSA demand increases.
And it will increase, according to Aamer Baig, a partner in DiamondCluster International's (Chicago) financial services practice and lead author of the consultancy's report, "Seizing the HSA Opportunity." Baig notes that "HSA custodians ... are currently opening over 50,000 HSA accounts each month." By 2010, there will be 15 million to 25 million HSAs holding $75 billion in assets, DiamondCluster projects.
The stakes have driven a musical chairs-like rush on the part of insurers and banks wary of being left behind without a partner. Seeking competent partners to assemble an HSA value chain is a good idea, according to Baig, but he says most partnerships have been struck with an emphasis on acquiring and servicing member customers through the employer health plan channel. "Very little thought has been placed on providing a good experience to the consumer right from enrollment, through point of sale, through investing of the consumers' funds," Baig comments.
In many cases, banks and insurers have formed what Baig describes as "loose partnerships" in which the consumer's engagement with each party is essentially separate. For example, customers may enroll in an HDHP and then be directed via written correspondence to open an account at a bank location or Web site. The detached nature of the HDHP-HSA linkage results in an unsatisfactory point-of-sale experience for the consumer and a costly manual process for bank and insurance partners, Baig offers.
More-customer-friendly and, ultimately, more-successful approaches will leverage technology toward three objectives, according to Baig. No. 1, systems should provide a seamless experience so that customers can navigate easily between health plans and HSAs. No. 2, platforms must integrate multiple partners on the back end, including health insurers, enrollment providers, tool providers and payment processors. And No. 3, in order to be prepared to acquire customers from either the employer channel or through more-direct means, systems should enable companies to offer a product that has both institutional characteristics -- that is, it needs to be associated with an employer, as in the case of a 401(k) -- and also retail characteristics (meaning portability for the customer) while meeting compliance requirements.