When vanity rears its ugly head, banks will be there to help pretty it up again. And they'll make a buck while they're at it.
As Baby Boomers age and seek a younger look, the demand for elective surgeries and cosmetic procedures is expected to surge. With about 76 million people, this group constitutes 26 percent of the overall U.S. population. Moreover, by 2050, people age 65 and over will represent more than 20 percent of the U.S population, up from12 percent today, according to the Census Bureau.
And since these surgeries are rarely covered by most insurance policies, banks will step in and provide financing for this new market, says Red Gillen, senior banking analyst at research firm Celent. Always on the lookout for potential new markets to finance, banks have locked in on medical financing. Moreover, elective surgeries and cosmetic procedures represent just one segment of the burgeoning market of medical financing, as other components have gained more traction, says Gillen.
Consumers will pay about $265 billion in 2007 for out-of-pocket expenses for health care, up from $192 billion in 2000, says Mark Rukavina, executive director of The Access Project, a health research and advocacy organization. He says it's not clear exactly how much is being spent on elective surgeries, although he believes it is the area that shows the most growth potential for banks. This sum also includes fertility treatments and cosmetic dental procedures.
Citi, Capital One and GE Money have dominated this niche for years, Gillen says, but he expects other financing providers to begin to crop up. Banks are marketing these services to providers-hospital and doctors' offices-as their customers, who, in turn, provide financing options to patients. GE Money has about 78,000 providers signed up, and Capital One has roughly 35,000, Gillen says. "It can be a real benefit to the providers because they traditionally were not able to provide [a financing] option," says Gillen.
Another out-of-pocket healthcare expense consumers are struggling to pay is that incurred in conjunction with high-deductible insurance plans, which often require an outlay of $2,000 or more before insurance coverage is triggered. The corresponding expenses will be a growing market for banks on transactional basis, he says. Some 12 million to 15 million people are covered by high-deducible plans, up from nearly seven million in 2006. Moreover, about 8.5 percent of the estimated 31 million businesses in the U.S. offer a high-deductible health plan, he says, an increase of 5.8 percent over last year.
The last major component of medical expenses that will increasingly be financed by banks are the out-of-pocket costs borne by consumers with health savings accounts, Gillen says. This portion of the market is dominated by banks that are already major players in HSAs: Exante Bank, UMB Bank and Blue Healthcare Bank.
Exante Bank is considering a financing service, but is still researching various options, says Jeff Grosklags, CFO and COO of Exante. The bank conducted a pilot program in late 2006 where it approached large hospitals to offer financing options, Grosklags says. "We've had numerous conversations and we are deciding where the biggest demand is coming from," he notes. Exante already offers a line of credit attached to its HSAs, he says.
But for the idea of medical financing to really hit its potential, he says, there first needs to be a major technological upgrade at hospitals and doctors' offices first to help providers keep a running tally of patients' out-of-pocket expenditures, particularly those with high-deductible insurance.
There is definitely a need for financing help for out-of-pocket expenses, he says, and the financial-services industry is a big part of the solution. "There are a number of opportunities to finance that gap," he says.
