Consumer-Directed Health Care Is Here to Stay: Credit Unions Gain Another Way to Deepen Client Relationships
Consumer-directed health care promises to be a strong force for the foreseeable future, although the nation's nearly 8,700 credit unions are just beginning to recognize their potential for securing new client relationships.
An estimated 300 credit unions expect to offer health savings accounts, an outgrowth of CDHC, by the end of '06; however, that number represents only about 3% of credit unions, according to the July 14, 2006, issue of Inside Consumer-Directed Care. Health Savings Accounts are special tax-deferred savings from which a consumer can withdraw money on a pre-tax basis for qualified medical care and expenses. Linked debit cards have become the consumers' preferred method to access HSA funds.
Consumer-driven health care plans provide benefits that reduce premiums and in some cases, combine a matching contribution from employers. The new consumer driven plans have been designed to increase choice and financial responsibility for employees. In addition, they will increase accountability for health plans and providers. Consumer driven health plans are likely to become increasingly popular for a number of reasons, including a backlash against managed care and the burden of health care-benefits administration on employers.
As consumers take on more personal financial responsibility in conjunction with CDHC, they'll realize a need to plan for their present and future health care needs in the same way they must plan for retirement. Consequently, we are seeing more blurring of the lines between health insurers and financial-services companies as consumers explore ways to manage their health and wealth through evolving technologies provided by credit unions, banks and insurers. A battle is brewing for the consumer relationship. Credit unions must take the growing competitive threat seriously and look at CDHC solutions as another way to attract new members and retain existing relationships. They must recognize, for instance, that HSAs are expected to grow rapidly as more cost-conscious employers offer them. The savings generated for consumers and employers can trigger tax-free contributions to privately held HSAs. As much as $300 billion a year in what used to be insurance premiums is now up for grabs for tax-free deposits or invested assets. This represents the largest legislated opportunity ever for asset capture in the United States.
Credit unions are awakening to that fact. The NCUA Board in 2004 approved rules that let federal credit unions serve as the depository institution for their members' HSAs. While the number of HSAs opened by credit unions is small compared to the volumes reported by banks and other large HSA administrators, more credit unions are making the account available and are promoting them to clients.
Credit unions are starting to view HSAs as a new way to boost deposits. For now, balances remain relatively small, and account holders aren't looking to their credit unions yet to offer a wide range of investment accounts. Most credit unions just offer money-market or other interest-earning accounts. As balances increase, credit unions are likely to consider high-yield certificates of deposit and other investment options.
As account assets grow, credit unions must increase the breadth of investment options available to CDHC investors. Consumer demand for HSA-plan flexibility and more tightly integrated services will compel them to develop an interoperable HSA, flexible savings account (FSA) and a health-reimbursement arrangement (HRA) payment-processing technology backbone. They also will want to empower customers with vastly improved access to health care information via their proprietary Web portal. With this health care transformation, opportunities emerge for credit unions to offer new products, technology, administrative and operational-platform solutions, including new Web-enabled consumer health care resources. Credit unions in the HSA business already anticipate that the number of HSA accounts will climb as more small businesses switch to HSA-compatible health plans for their employees. The well-established ability of credit unions to accommodate secure information; provide HSA, FSA and HRA accounts as well as debit cards; process financial transactions; hold funds; and manage investments and consumer relationships translates into potential leadership in the CDHC value chain. And the credit unions that move first stand to gain the most in this quickly changing and fast-growing market that's here to stay.