Why HSAs Offer Great Growth Opportunity for CUs
February 5, 2016 10:29 AM
When you consider all the different products credit unions offer their members, is there really any compelling evidence health savings accounts (HSAs) can make a significant difference? HSAs can, in fact, promote growth; however, to what degree depends on several key factors.Lets look at the statistics that lead to the more tangible benefits of offering HSAs to credit union members. Consider that at the end of 2014, some 17.4 million Americans were covered under the type of high deductible health plan (HDHP) required to pair with an HSA, which is a 12 percent increase from 2013. The steady growth in HDHPs, and consequently access to HSAs, has continued unabated since 2005 (see chart).
HDHPs are becoming the favored choice among employers big and small. In 2014, 24% of employers of all sizes offering a healthcare plan used a HDHP and of those with 200+ employees, more than half used HDHPs. With such prevalence in the marketplace, HSAs stand to become as ubiquitous as individual retirement accounts (IRAs) are today and will likely surpass them as more employers convert to either HDHPs or shift to another trending employer-provided healthcare solution defined contribution healthcare.
In the defined contribution environment, the employer does not offer any health plans, but rather makes a "defined contribution" to the employee specifically for their healthcare. Employees are responsible for shopping for health plans on their own and choosing the one that best fits their budget. The defined contribution dollars from the employer are then used to fund all or part of their premiums. To facilitate this, employers often partner with private healthcare exchanges that offer a number of different plans the employees can select from (or not), or the employee has the option of buying their health plan from the public healthcare exchanges, such as healthcare.gov, or on the open insurance marketplace. When this is offered, most consumers seek to keep their premiums lower and select HDHPs that generally can be paired with HSAs.
As HDHPs and defined contribution options become more widespread, credit unions stand to benefit. None of these exchanges and few independent insurance sellers provide the option of pairing HSAs with the health plans they are selling. Ninety percent of all existing HSAs are in-demand deposit accounts at banks or credit unions because most HSA owners use funds from their HSAs on an ongoing basis to pay deductibles or uncovered medical expenses that qualify for tax-free distributions from the HSA (dental or vision expenses, for example). The transactional nature of most HSAs means credit unions have a huge role to play in making sure potential and existing members have somewhere to put their HSA contributions.
Unlike IRAs, the majority of HSAs are likely to stay with credit unions and banks for the long haul, though a certain percentage of them with high enough balances will eventually migrate into market investments instead of time deposits.
HSAs present three potential revenue streams for a credit union.
1. Credit card swipes on the demand deposit account (DDA). In 2015, HSA accounts averaged over eight card swipes at an average transaction value of $101. This presents a revenue opportunity in the interchange fees associated with those card swipes.
2. Net-interest income. While interest rates remain at historic lows, they are expected to rise in the near future, creating an improved revenue stream from the net-interest income acquired.
3. Added fees. While the fee opportunities within HSAs are minimal, many organizations charge transfer fees, and some even charge small monthly account maintenance fees similar to those associated with standard checking accounts.
While those three revenue streams may not be barn burners, they will certainly offset the cost of offering a product that more and more Americans are seeking to take advantage of every year.
Sixty percent of people currently enrolled in HSA-eligible plans have opened HSAs. As healthcare consumers become more knowledgeable about HSAs, this number is expected to rise, and credit unions can play a pivotal role in making that happen. The lack of HSA education in the consumer realm is frightening and astonishing, and credit unions seeking to fill the void could easily strengthen relationships with existing members, and draw newand often youngermembers from community banks.
HSAs can help credit unions grow because they are a product tailor-made for millennials. In just 10 years, millennials will make up 75% of the U.S. workforce, and they are natives to the HDHP/HSA world. They did not have to transition to understanding them or adjust from a more traditional type of health plan. These plans, along with HSAs, have been the preeminent form of health plan among many employers and during most millennials' tenureand that number is still growing. HDHPs and HSAs allow millennials to reduce the amount of their paychecks that go towards healthcare, and even offer them an opportunity to use tax-free distributions to cover ancillary qualified costs such as glasses, contacts, and orthodontia. Millennials will take HSAs to a whole new level in terms of adoption, which provides a great opportunity for a credit union to have one more account relationship with them.
Less than 1000 credit unions currently offer HSAs. This desperately lags behind banks and leaves the door open for members to go elsewhere for not only HSAs, but for other accounts such as car loans or mortgages. Those are the key relationships to building growth in a credit union, but HSAs can be a tie that binds that member to your credit union for a lifetime.
HSAs can be a bridge to new members, and new members are what credit unions need for sustained growth. The amount of money in HSAs doubles every two to three years, which sounds like a product that is here to stay for the long haul.
Kevin Boyles is vice president of business development for the retirement products and services division of Ascensus. He earned the Certified IRA Services Professional (CISP) designation from the Institute of Certified Bankers as well as the Certified IRA Professional (CIP) designation.
