Window of Opportunity Can Quickly Close if CUs Wait Too Long to Offer HSAs
WEST PALM BEACH, Fla. -- The confidence in Health Savings Accounts being the next big thing since individual retirement accounts continued to build in 2006.
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 portable 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.
Industry experts predict by 2008 there will be over six million HSA accounts with over $5 billion in assets. Those estimates may be conservative as by January 2006 participation in HSAs-qualified HDHPs tripled to nearly 3.2 million individuals.
With rising health insurance premiums, more large and small business employers are turning to consumer directed health programs offering high deductible health plans to employees to help manage costs. Individuals who are covered by HDHPs can make tax-deductible contributions to HSAs. Supporters believe the combination of HDHPs and HSAs will encourage wiser health care spending while motivating consumers to shop for the best value.
Experts say of the estimated HSA $75 billion pie, financial institutions have the potential to capture some $3.5 billion in revenues driven by account and asset management fees.
Recognizing the potential and the importance of early adoption, banking giants like Bank of America and Wells Fargo eagerly jumped into the HSA game. Serious about being major players, the American Bankers Association and American Bankers Insurance Association formed The HSA Council to push the distribution of HSAs through banks. Its plans include targeting decision-makers in Congress and the administration in hopes of promoting HSA adoption. In addition, the group is looking to ease perceived technological and regulatory hurdles for banks entering the HSA market.
While more credit unions opted into offering HSAs in 2006 and incorporating such conveniences as debit cards, checks and medical pricing comparison services, experts say there is not nearly enough CU participation. A NAFCU Flash report revealed that 89% of credit unions do not offer HSAs.
To help credit unions move beyond the indecision and move from the sidelines to active players, 2006 marked the year of education efforts across the credit union industry on the opportunities HSAs provide and how credit unions can best enter the market.
Though the accounts may be small initially, credit unions should think of the future aggregation the products can bring. Experts add that once group HSAs are set up elsewhere, it is difficult to get the employer to switch, so it is vital that credit unions begin educating their members, particularly during open enrollment periods if they don't want to be left behind.
As 2006 came to a close the IRS raised HSAs limits for 2007. The maximum contribution that can be made to an HSA will be $2,850 for employees with single coverage and $5,650 for family coverage. In addition, the maximum out-of-pocket expense will rise to $5,500 and $11,000 for those with family coverage. HDHP minimums have also gone up to $1,100 for single coverage and $2,200 for family coverage.
Congress also did its part to make HSAs more appealing by passing HR 6111, which includes a number of benefits to make HSAs more attractive to consumers and employers.