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HSAs: A Health Care Trend Worth Preserving

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Election year politics have cast doubt on the future of the Affordable Care Act, but there's one thing the debate is unlikely to change: the growing popularity of health savings accounts.

In 2011 alone, the number of HSAs increased 55 percent from the prior year to 8.4 million, with $7.3 billion of assets under management, according to the Employee Benefit Research Institute.

"Everyone is trying to figure it out and find a better alternative to today's high-cost health plans, and for millions of Americans the HSA is a good fit," says Elizabeth Ryan, head of Health Benefit Services for Wells Fargo (WFC).

This trend has worked out well for banking companies that handle HSAs. Wells has $750 million in the HSAs it oversees. Last year its number of HSAs increased by 100,000, or 38 percent, and Ryan expects growth this year to come at a similar clip.

She says that much of the increase is due to people switching from traditional health insurance plans to HSAs (which are tied to high-deductible insurance plans). While many businesses are seeking HSAs as a health care option for employees, some individuals are signing up for HSAs on their own, to have more control over their medical spending.

Many of the small businesses or the self-employed who have gravitated to HSAs that are offered by banks have done so because it makes for one-stop shopping-and administration-when it comes to managing the financial aspects of health care.

Kevin McKechnie, executive director of the American Bankers Insurance Association, says banks "are becoming a trusted employee benefits manager."

Unlike traditional insurance plans, he says, an HSA stays the same no matter if the account holder moves to another state or gets another job (though the high-deductible insurance plan associated with it may change). "You can't take insurance with you," McKechnie says, "but you can take an HSA with you."

Dean Mason, the chief executive of the Milwaukee-based HSA Bank, says that this flexibility has spurred many customers to set up HSAs at his institution. HSA Bank, a division of $18.6 billion-asset Webster Financial (WBS) in Waterbury, Conn., has about 420,000 accounts with $1.4 billion assets under management, up 40 percent from the end of 2010.

Like Wells Fargo, HSA Bank has business customers offering its HSAs to employees, as well as individuals who have gone to the bank's website and signed up for HSAs on their own.

Though some banks may be tempted to get a piece of this rapidly expanding-and very stable-business, Mason warns that it's not for everyone. In fact, HSA Bank is providing HSA administration for seven other banks, a few of which tried offering HSAs on their own first, he says.

We think HSAs are a strong product and great source of long-term, stable deposits, but you have to reach a tipping point of 40,000 to 50,000 accounts to really make the business profitable," he says.

Ryan says that Wells Fargo has also picked up several HSA portfolios from smaller banks. She notes that many banks are burdened by the additional regulatory requirements necessary when handling health care information. "There are a lot of big competitors out there in the HSA space," she says. "But not everyone can do it."

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