Canopy Financial is on a roll. Two years after introducing its Web-based financial processing service HealthDirect, 12 of the 25 top banks and healthcare plans in the U.S. use it to administer more than a million health savings and flexible spending accounts. Gross revenues have increased by more than 500 percent year-over-year, and earnings more than tripled. In October, privately held Canopy acquired CareGain Inc., a business unit of Fiserv Health, making Canopy "the dominant force" in the healthcare banking and related products industry, according to Canopy's CEO Vik Kashyap.

The road ahead looks just as promising as more employers, responding to ever-increasing health premiums, steer employees to high-deductible insurance plans attached to consumer-directed HSA investment vehicles. Celent estimates that there will be three million HSAs by the end of 2008, with growth around 50 percent a year to more than 12 million accounts by 2012.

Flush with $23 million in venture capital in 2008, Canopy boosted its technology spend nearly a third to $3.5 million to support more volume in its processing infrastructure and enable health plans to offer enrollees greater flexibility in choosing which bank to open an HSA. "There are not many players that are doing what Canopy is doing right now," says Red Gillen a senior analyst at Celent. "They seem to have the most innovated features and offer full support for HSAs... They are like HSA in a box."

There are several drivers behind banks' interest in HSAs, not the least of which is the $50 billion in HSA assets projected by Financial Insights to be under management by 2010.

While Canopy's initial challenge was to convince banks and health plans that a Web-based processing service specific to healthcare is better than "re-purposing an existing platform," Kashyap says the future is about providing health savings account holders with more choice and flexibility. To that end, Canopy this year filed for patents on new online technology, such as enhancing HealthDirect's processing capability for paying medical bills online.

Linking health plans' consumers to multiple bank HSA offerings is "the smart strategy," Gillen says. "Choice will be increasingly in demand. It will give health insurers a competitive advantage."

This year, Canopy released HealthDirect Investment, an online investment planning tool using a set of asset allocation models specific to healthcare that Kashyap says help HSA holders plan savings and investing for future out-of-pocket healthcare expenditures. Gillen says it's another example of Canopy being "out ahead of the market" since investing HSA dollars hasn't yet taken off.

Besides blue chip clients such as Wachovia, Fifth Third and CareMark, Canopy's HealthDirect was integrated this year with Wolters Kluwer's HSA Director platform, exposing it to potentially thousands of more institutions.

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