Banks should prepare themselves for an increasingly strenuous competition to realize the business benefit of President Bush’s proposals to enlarge the tax breaks for health savings accounts, industry observers say.
The administration’s proposals would boost revenue growth opportunities for banks that offer HSAs, said Dennis Stover, a senior vice president of corporate development at HealthEquity Inc., an American Fork, Utah, health savings account administrator, but banks must expand their HSA services to stay viable in the increasingly competitive environment.
Banks should offer comprehensive customer service and administration for health savings accounts to simplify employers’ transition to the product, Mr. Stover said. HSA vendors will also have to offer investment management services to remain competitive, he and other observers said.
“Some of the reluctance that has encouraged large employers to turn to health reimbursement accounts instead of HSAs in 2005 might well go away, particularly if the contribution rates are changed as [Bush] proposed,” said Dennis Triplett, the president of UMB Healthcare Services, the division of Kansas City, Mo.-based UMB Financial Corp. that sells health-care savings vehicles.
As more banks introduce health savings accounts, many are offering proprietary or nonproprietary underlying investment options, Mr. Triplett said.
“If the contribution limits are raised, surely the attraction to HSAs will increase,” said Nicholas Kaiser, a director and the president of Saturna Capital Corp., a Bellingham, Wash., investment manager that offers health savings accounts. “There has been steady growth in the plans already. We’re seeing more providers offering the product.”
A survey released last week by Information Strategies Inc., a Fort Lee, N.J., marketing company that tracks HSA data, found that more than 600 banks and other financial institutions were offering the product as of Jan. 1. It predicted that by this yearend 3.6 million health savings accounts will have been opened, with assets under management of $5.1 billion, triple the total at the end of 2005.
The TowerGroup unit of MasterCard International has estimated that the HSA revenue opportunity — including asset management and administrative fees and card interchange — would reach $308 million a year for financial institutions by 2010. In addition, HSA assets under management could reach $18 billion by then, TowerGroup said.
“Investment firms have been offering brokerage HSAs for some time, and it’s becoming more common,” said Saturna’s Mr. Kaiser. “People may be saving money for multiple years in health savings accounts, so it makes sense to offer investment management services.”
