A Massachusetts community bank and a payment and banking applications provider have teamed up to capitalize on an Obamacare-assisted trend: the growing health care savings account market.
Avidia Bank, a $1.13 billion-asset institution based in Hudson, Mass., and Alegeus Technologies, formerly part of FIS, announced a partnership in December to offer health savings accounts using an Alegeus platform.
The Affordable Care Act, sometimes called Obamacare, has introduced public health insurance exchanges and accelerated the adoption of the defined contribution and private exchange model, where the employer provides a set amount of money for the employee to shop for his or her own insurance, says Tom Torre, chief executive of Alegeus. And most employees, given a choice, will choose a high deductible plan, taking on more risk in exchange for lower monthly out-of-pocket costs for insurance premiums, he says.
"We honestly feel that many younger consumers will start to save the delta, the money they're saving monthly [by going with lower-cost insurance]," says Robert Conery, Avidia Bank chief operating officer and executive vice president. "Rather than just going out and spending it, (they will) put it into their health savings account, so that over time, as they get older and have families, they'll have enough stored away to cover any expenses they might choose to pay out of pocket."
Health care savings accounts, or HSAs, have tax advantages payroll deductions paid to the accounts are pre-tax, and the money and interest earned is not taxed as long as it is used for health care. Consumers can also deposit other funds that have been taxed and seek deductions on their income tax forms. After retirement age, HSA money can be withdrawn for non-health care purposes without penalty, but it is subject to income taxes.
Each HSA must be linked to a high-deductible health care plan defined for 2014 as one with a minimum deductible of $1,250 per year for an individual or $2,500 for a family.
The amount that can be deposited into an HSA each year is higher than with a flexible spending account, or FSA $6,450 per family in 2013, for example and an unlimited amount can be carried over into the following year. Also, with an HSA, documentation isn't necessarily required when money is spent from the account, but the IRS may require documentation later.
"The numbers on what the cost of health care will be for folks in retirement exceed the cost of college tuition," Torre says. "My kids will probably cost me $300,000 to attend college for four years. We will probably spend more than that to cover the cost of post-retirement health care, so the numbers become staggering."
Torre foresees the HSA marketplace evolving the way the 401(k) marketplace did, as defined-contribution retirement plans eventually dominated the marketplace, replacing defined-benefit plans for most employers. According to Devenir, an HSA investment firm, HSAs had grown to $18.1 billion and more than 9.1 million accounts as of June 30th, 2013 up 29 percent from one year earlier.
Alegeus Technologies, based in Waltham, Mass., provides health care-related payment and banking applications to the health care and benefits industry. FIS sold its health care benefits division in 2012 to Lightyear Capital, which renamed the division as Alegeus.
The Alegeus platform brings together the components that a bank needs to offer an HSA, Torre says. That includes mobile portals and other account access tools for consumers, a benefits administration platform that allows HSAs to be set up, and the necessary reporting and tracking tools necessary to manage the account.
Alegeus also provides card processing technology so a debit card can be linked to the health savings account, and the ability to have a core deposit system linked to an investment platform so that excess cash can be swept to investment accounts.
"It's similar to what you see with core payments and banking, but unique and different in that it's specifically focused on the HSA space," Torre says.
Previously, Alegeus had integrated with an existing core processing platform to do the checking account and deposit portion of an HSA. But with the new platform, Alegeus has built its own core platform specifically for HSAs, so Alegeus customers can choose between existing cores or the new one, Torre says.
From a banking perspective, the health savings accounts are like hybrid checking/individual retirement accounts, Conery says. The accounts have debit cards, traditional check writing, Internet and mobile access, and mobile check-capture deposits. The cost to the consumer is similar to that of a checking account some variation on no fees with low or no interest, or charging a fee and paying higher interest on the account balance.
Alegeus and Avidia are reaching out to market their HSA solution to third-party benefits administrators, benefits brokers and health plans. Avidia is also marketing directly to two target markets for the HSAs: individual consumers and corporate clients. As the corporate clients have sought ways to lower their employees' health insurance costs, they've started offering more high-deductible plan options, Conery says.
Eventually, consumers with high-deductible health care plans will be able to go to any bank that offers HSAs and set up an account, Torre says. For now, the employer must have a relationship with Avidia to set up the HSA with payroll deductions. Typically, an employer will work with a benefits administrator that has one or several bank relationships.
"As the market matures, it's going to be much more ubiquitous -- employers will have available to them hundreds of banks that they can put money in, versus a handful," Torre says. "That's why we've invested heavily in building out our core HSA processing capabilities."
A lot of the commercial customers are small businesses without a benefits administrator, so the bank can provide the HSA services directly. Another opportunity is with insurance brokers, as they eventually establish private health insurance exchanges for small businesses, Conery says.
Consumers who enroll in high-deductible plans won't necessarily be affluent, Conery says, but they will be attractive from a marketing perspective because they'll typically be young and just entering the work force.
"We want to establish a long-standing relationship," he says. "They'll be entering many marketing moments in their lives buying a first house; down the road, their sons' or daughters' college education. All those marketing moments present opportunities for the bank."
"What we really see is that with consumerism entering the marketplace, and hopefully transparency in health care costs, the younger consumers will start making more educated decisions, because they'll have options," Conery says.
Keith Button is a freelance writer based in Valley Cottage, N.Y.