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The shift to consumer-driven health care that allows consumers to manage and control their health care costs through use of health savings accounts is quickly changing the way we provide and pay for health care in the U.S. Businesses are increasingly shifting to high deductible health plans to reduce health care costs. Employees are using HSAs to pay for qualified medical expenses not covered by their high deductible plans. Experts following these developments predict one-third of employers will offer their employees high deductible health plans by year-end, and this shift will result in explosive HSA growth. Credit unions need to act now to position themselves in the HSA marketplace. Available since January 2004, HSAs have been slow to take off. Insurance companies needed to obtain regulatory approval to offer HSAs in tandem with HDHPs before offering them for sale, and a lack of regulatory guidance caused some financial institutions to take a wait-and-see attitude. According to America’s Health Insurance Plans, the trade association for the health insurance industry, the number of HSAs reached 438,000 by the end of the third quarter of 2004. That number increased to more than one million by March 2005, then tripled to 3.2 million by January 2006, a figure the Joint Committee on Taxation predicted would not be reached until 2013. HSAs are even outpacing the initial adoption rate of IRAs. The number of HSAs does not tell the whole story. While most of the initial sales were made to the individual market (people lacking adequate health care coverage), recent growth is coming from the group market as more businesses offer HDHPs. HSA coverage offered by companies tripled from 397,000 in March 2005 to 1.4 million in January 2006. In the past year, the number of employers offering HSAs has quadrupled to 32%, according to a survey by Buck Consultants. The federal government offers its employees an HSA option, as do some states. Wal-Mart, DaimlerChrysler, General Motors and Wendy’s are among the major companies that currently offer employees an HSA option. According to a survey by Watson Wyatt, 33% of employers plan to add an HDHP for 2007. A high deductible health plan provides health care coverage for most medical costs once the employee meets a relatively high deductible. Preventive care can be paid on a first-dollar basis. The minimum qualifying deductibles are $1,050 for a single person and $2,100 for family coverage. This means an individual or family is responsible for medical bills up to this amount before coverage other than preventive care kicks in. HDHPs have helped companies lower their health care costs, but put more of the burden on the employees. HSAs help people save money in a tax-free account that, unlike a flexible spending account, does not have to be depleted annually. When CUNA Mutual Group rolled out its HSA program in April 2005, only four credit unions nationwide offered HSAs. That number grew to 76 by July and more than doubled to 157 by the end of last year. Banks are also recognizing this trend, with most of the top 20 U.S. banks now offering HSAs, including Bank of America, Wells Fargo, US Bank, BB&T and Fifth Third Bank, though the majority of banks and credit unions still do not offer HSAs. While the current number of HSAs may seem small, credit unions need to recognize the rapid adoption of HDHPs will drive HSA growth. More and more of their members will have access to an HDHP, and many will look to their credit union to open their HSA. According to a survey by Information Strategies, Inc., nearly one in four HDHP participants looks first to their local financial institution to establish an HSA, but more than half are turned away because the local institution does not offer one. That’s why nearly 40% of HSAs are maintained with a national or online bank according to the survey. Credit unions having entered the HSA market in response to member inquiries or to accommodate a small business customer are meeting those members’ needs. However, credit unions that have entered the HSA market as part of an overall strategic vision are experiencing success and meeting more members’ needs. These credit unions are offering HSAs to individual members, providing HSAs for employees of their small business customers, serving as the designated HSA provider for their sponsor company’s HDHP, establishing relationships with insurance agents and brokers to offer HSAs to their customers, and establishing relationships with insurance companies as part of an overall health banking strategy. They are using HSAs as part of a strategy to build primary financial institution status, provide a complete package of small business services, strengthen relationships with sponsor companies, and gain a foothold in the health banking market. These credit unions recognize the HSA market is changing rapidly. Insurance companies are chartering banks to offer HSAs and other products. JPMorgan Chase Bank and Mellon Financial are entering into exclusive relationships with insurance companies. Most of the top 10 U.S. banks have entered the market. Some, like Bank of America, are targeting small business customers and others are offering HSAs directly to their retail customers. A few companies are even offering a total health banking solution that includes access to insurance, investments, claims processing and health advocacy. The future of the HSA market is evolving day-by-day. The shift to consumer-driven health care that is fueling HSA growth has also ignited a public policy debate about the future of health care financing. The jury is still out on the policy debate, but as a credit union, more and more of your members will have an HDHP, and they’ll be looking to you to open their HSA. Be aware of the growing HSA market, the limited window of opportunity to enter, and the risks of not entering. HSAs today are no longer an accommodation product offered to meet the needs of a single member who asks, but part of an overall strategy to meet the future health care financing needs of your members. HSAs fit well into a long-term strategy to grow your credit union.

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