Though banks and other financial providers have struggled to generate profits from health savings accounts, Fidelity Investments is betting that its big customer base will give the company’s new HSA product a competitive advantage, says Kirk Arnold, an executive vice president at Fidelity Human Resources Services Co.
Fidelity’s HSA, which was announced on Monday, is one of the first from a benefits provider.
Only the larger banks have been able to show profit in the health savings account market thus far, industry observers have said. Smaller players often have limited access to vital distribution channels, including employers, third-party administrators, and business services providers, these observers say.
But Fidelity hopes its considerable presence in the benefits management space, which includes employers that use its defined contribution and health service products, will give it a leg up. The company will initially market HSAs to about 150 employer clients who have previously expressed interest in the product, Ms. Arnold said.
“We’ve had keen interest from employers large and small,” she said.
Fidelity’s benefits capabilities will enable it to integrate record keeping and communications for the HSA with other benefit plans, such as 401(k)s and flexible spending accounts or other medical savings plans, that employers may have with Fidelity, Ms. Arnold said.
“We want to make things seamless and easy for the employer,” she said.
Fidelity’s health savings account is unique in that it offers access to underlying Fidelity mutual funds as an investment option for money from the accounts, whereas most health savings accounts only allow the placement of employees’ money in a savings or checking account, she added.
Fidelity hopes its HSA offering will be a boon to its benefits business as a whole, Ms. Arnold said.
“We view this as a differentiator,” she said. “We’ll be able to go into markets we’re already servicing and offer another product. We can bundle it with our defined contribution plans.”
Fidelity aims to supply comprehensive HSA servicing and support, Ms. Arnold said. In addition to record keeping and investment options, it will offer customer education through WebMD Health Corp. and will give Web and call-center support for employers and employees.
New York-based WebMD supplies Internet-based consumer health data, such as disease information and nutrition tips.
Fidelity may face significant competition in health savings accounts. Despite the limited profit prospects thus far, more than 80% of banks are “very optimistic” about their opportunity to administer the accounts, according to a study of 80 mostly large institutions by Kenneth Kehrer Associates, a Princeton, N.J., consulting firm that tracks bank sales of insurance and investment products.
Most banks in the Kehrer survey — more than half of which already administered HSAs — said they expect strong or moderate growth in the business during the next two years.
As the baby boomer generation approaches retirement, companies are becoming more concerned about how health-care costs will affect employees after they retire, Ms. Arnold said. Health savings accounts, which let people with high-deductible health plans save tax-free for medical expenses, offer a means of addressing that issue.
The accounts also help employers reduce the cost of providing health care to employees, she added.
“Employers are looking increasingly at the question of retirement readiness, and the health-care needs of retirees have become an increasingly important part of the conversation with our clients,” she said.
Forrester Research has estimated better than 15-fold growth in HSAs, from 391,000 accounts at Oct. 31 to more than 6.3 million by 2008. These accounts will generate more than $250 million of fees in 2008, the Cambridge, Mass., technology and market research company said.
Fidelity’s HSA product is “the confluence of a couple of years of work,” Ms. Arnold said. In developing it, the company gathered feedback from employer clients who had expressed interest in offering a health savings account to their employees, she said.
“It was extraordinarily important to our business model that employers be involved with developing the product because it is an early market,” she said.
Fidelity’s health savings account will be available to employers for their 2006 benefits plan decisions, and employees can begin using the accounts Jan. 1, 2007.
