WEST PALM BEACH, Fla. -- When it comes to offering health savings accounts many say credit union size does not matter.
Touted as the next big thing since IRAs, HSAs are tax-free savings accounts that can be used to pay for medical expenses including prescription and over-the-counter drugs incurred by individuals, spouses or dependents. These accounts are accompanied by high-deductible comprehensive insurance policies that cover preventive care and larger medical bills. Unused HSA money rolls over from year to year and can then be used to pay for medical care up to the plan's deductible.
A recent Aite Group report, Health Savings Accounts: A Bounty for Banks?, forecasts that large and specialty banks will be the winners in the HSA market.
The report defines market segments (investors, savers and spenders), highlights attributes of these segments, discusses the challenges that bank custodians face and recommends market strategies for the various categories of banks. Aite Group experts predict that HSAs will reach 11.2 million by 2010 and large banks will support 40% of those accounts with specialty banks supporting 35%. It is estimated that credit union HSA accounts will drop from their current 15% level to 5% in 2010.
Fiserv Credit Union Eastern Region President Joe Barry says credit unions shouldn't think they are out of the HSA game just yet.
"Many of these big players were the first movers in this area and they take it from a wholesale perspective of targeting large companies and offering large plans integrated through the employer's high deductible health plan so when employees are picking their benefits it is all included in the package," said Barry.
"Regulations make it clear that consumers have the choice where their deposits are so if members are made aware of this choice this is the retail opportunity for credit unions and even community banks to pick up HSAs."
Barry adds that given the rising cost of health care many small business owners are becoming early adopters of HDHPs just to be able to offer their employees health insurance. It is an opportunity for credit unions to position themselves as the local business HSA partner.
"It can be a way to help small business owners," said Barry. "Adoption has been limited at this point. It is not a field of dreams of 'if you offer it they will come'--there is work involved in educating members that yes you can have your HSA's deposits at the credit union. It is about going after that market and there is certainly a role for credit unions to play." Call to Action
In Wichita, Kan., Mid American Credit Union is one of a few financial institutions in the area offering HSAs with no additional fees.
"In 2004, our president just felt that with the health insurance crisis and people not having insurance, HSAs would be something that would become necessary and had future growth potential," said Mid American CU Compliance and Technical Services Coordinator Connie White. "I think we were second in the nation to offer HSAs and although it was limited in scope we felt that HSAs would still be more popular than medical savings, which we never offered."
White says that while the initial launch did not result in a stampede rush of members opening the accounts, the credit union always viewed it as more of a long-term product offering. The patience has paid off; the $120 million credit union has gone from just 15 HSAs at the end of 2004, to a current 98 accounts with a balance of $83,414.41.
"Now there is so much help out there regarding these accounts," said White. "If there is someone at your credit union with experience in IRAs it's not a huge leap to then offer HSAs. For us initially we had to do manual reporting because again at the time there wasn't a program in place to enter the information on the computer. Happily we don't have to worry about that anymore." To roll out the new offering, information was made available on the credit union's Web site and via newsletters. In addition, Mid American hosted lunch and learn sessions with area SEGs. White credits the HSA growth to more SEGs switching to high deductible health plans. "Think about it, benefit plans are reviewed once a year and to offer HDHPs they'd have to rewrite plans to conform with Treasury guidelines so it is a time consuming process," said White. "Most of our HSAs come from our smaller SEGs, very rarely do we have a member just walk in asking to open an HSA and the larger companies tend to have cafeteria plans." White adds that to make the product offering more attractive convenience is key. Some 40% of the accounts are linked to checking accounts and about 60% are in an HSA savings. Recently the credit union introduced an HSA certificate to meet the needs of those looking for a longer term plan and debit cards for added convenience in accessing their funds. Patelco Credit Union Senior Vice President of Marketing Alison Aplet Jones adds that innovation in anticipating members' HSAs needs can further help CUs stand out from the competition.
As one of the first CUs to offer HSAs in California, the San Francisco-based credit union has already made modifications to its HSA program since its launch in January. In addition to providing higher rates (currently 5.12% APY) and a checking and debit card feature, Patelco has gone a step further by offering My Medical Control, a consumer directed medical claim review and settlement service. The company will analyze a member's out-of-pocket medical bills, and if the member is being charged more than what is generally reimbursed for the same or similar care, the firm will intervene and settle with the provider to save the member money. The member is only charged a service fee if My Medical Control can save them money.
"It is a win-win for everyone. As a greater responsibility of paying for medical care is transferred to the general public, we want to be in a position to help ease the financial burden as best we can--it's why we started offering Health Savings Accounts in the first place," said Aplet Jones. "We're constantly reviewing the program, checking with members, to ensure we're offering a well rounded program with services that members need and can really use." She adds that looking ahead, Patelco is in the process of researching the incorporation of a pharmacy discount benefit into its HSA program. To date, with only a soft launch via branch brochures, newsletter, letters to SEGs, and its Web site, the $3.8 billion credit union has opened 1,035 HSA accounts for $1,769,000 in total deposits. Aplet Jones says the average HSA deposit is about $1,709. "When it comes to HSAs you have to listen to what your members want. They are looking for assistance in paying their medical expenses so it only makes sense to have something in place to meet those needs--it is what we're here for," said Aplet Jones. Regulatory Relief
For credit unions still in a wait and watch mode Barry says offering HSAs is not only relatively easy, but the regulatory burden on credit unions is very limited.
"There is no big barrier to enter into the market," said Barry. "Consumers are responsible for all the reporting and tracking of their withdrawals so it is a matter of lining up the right set of members who have HDHPs and the real challenge is identifying just who those members are." Barry says there are basically three different types of members that respond to HSAs: transactional account active users, local business owners who want to not only offer employees insurance, but are also looking for an opportunity to tuck away some tax-free income, and consumers in the middle who use the accounts to save for a later date for example an elective procedure they plan on having two years from now. "We credit unions have to change our thought process and the idea that we have to hold onto that control like IRAs--'you come in and see me and I'll give you the money.' So many CUs ask me with the debit card and checking account how do we make sure they get their HSA withdrawals coded properly and I tell them I don't care. Unless it is a death distribution or excess, the member is responsible for providing their receipts if they are audited," said White. "The first leap is scariest and HSAs are not as complicated as they look. You do have to devote staff time learning and training but it is not overwhelming and it is well worth it." --firstname.lastname@example.org