Banks stand to generate new revenue from the health-care market as employers shift from traditional managed plans to consumer-driven plans, industry watchers say.
Banks already handle money management and account administration services for people with health savings accounts. Analysts say they could soon expand their HSA services to include payment processing, debit and credit cards, and distribution of health-care providers’ products.
Consumer-directed packages pair a high-deductible health plan with tax-deferred vehicles, including HSAs and reimbursement arrangements. With traditional managed plans, employers bear the brunt of health-care expenses; consumer-driven plans give employees more choice but also expose them to more financial risk.
The U.S. health insurance and financial services industries are set to converge as consumers assume more responsibility for health-care savings, creating opportunities for banks to enter the industry, according to a report released in June by McKinsey & Co. The New York consulting firm estimates that annual pretax operating profits from health-care-related financial services products will grow to more than $10 billion by 2015.
Regina Herzlinger, a Harvard Business School professor and the author of “Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers,” says that about 4 million people have consumer-driven health-care accounts and that she expects that number to grow to 10 million next year.
The average balance for consumer-directed health accounts is $2,000, she said.
Nathaniel Brinn, the chief executive officer of HSA Bank in Sheboygan, Wis., a provider of health savings account administration and management, said banks would have to invest heavily in customer service, partnerships, technology, and marketing to succeed as full-service providers of health-care-related financial products.
“It’s a thin-margin business, a volume business,” Mr. Brinn said. “There’s a lot of service involved” and “there are only a handful of players like us who make major investments.” His bank is a subsidiary of the $17.4 billion-asset Webster Financial Corp. of Norwalk, Conn.
Some banks may decide to distribute products from other companies instead of developing their own. That’s where outfits like ConnectYourCare come in.
The Baltimore firm outsources health-care administration for employers and benefits brokers. Through ConnectYourCare, employers can select from a menu of health insurance providers and provide tools to help their employees make informed medical decisions.
Terry Hunter, ConnectYourCare’s chairman and CEO, said his firm is marketing its platform to banks and expects to announce its first bank partnership within the next two weeks.
Mr. Hunter agreed with the McKinsey report that payment processing offers banks a good opportunity in this market.
The report said that “the cost of processing health-care payments can often be 15% to 20% of the transaction value, compared with 1% to 2% for retail payments.” Streamlined payments processing could save employers as much as $3 billion to $4 billion a year in operating costs, it said.
Ms. Herzlinger said some may find it difficult to offer banking and insurance services at once.
“It requires a lot of data management to maintain these accounts and integrate them with insurance,” she said. “The integration with insurance is a big deal, and it’s not clear that banks have these competencies.”
