Some banks use them as a way to draw clients to wealth management services.
Others use them as an additional investment product.
And some community banks and credit unions use them defensively, to retain customers.
For all these purposes, analysts say, health savings accounts will continue to grow rapidly in the bank channel as their cross-selling potential is exploited.
"Health savings accounts are just the tip of the iceberg for financial services firms to offer other wealth management services to their customers," said Aamer Baig, a partner at Diamona Management and Technology Consultants Inc.
Health savings accounts have burgeoned. The Treasury Department says the number of lives covered by HSAs grew eightfold in about a year and a half, from 400,000 in September 2004 to 3.2 million this January and could reach 40 million to 45 million by 2010.
Last year the number of financial companies offering the accounts grew sixfold, to 600, and deposits had surpassed $2 billion by March, according to Information Strategies Inc., a Palisades Park, N.J., company that tracks the product. The TowerGroup unit of MasterCard International has projected an HSA revenue opportunity for financial companies of $308 million a year by 2010.
Analysts said every bank and financial services company approaches the product differently, motivated variously by the desire to gain a share of this revenue, introduce customers to its wealth management platform, or to keep customers from moving money to another bank that has health savings accounts.
"Banks are coming at this product from a lot of different angles, and their motivation is all over the map," said Shawn Jenkins, the president and chief executive officer of BenefitFocus, a Charleston, S.C., firm that supplies back-office support to banks and other financial institutions.
For companies like Mellon Financial Corp. and Bank of America Corp., Mr. Jenkins said, health savings accounts provide an opportunity to develop wallet share, but for community banks, regional banks, and credit unions offering the product is a defensive strategy.
"A lot of smaller firms want to offer HSAs just to maintain their relationships with business owners," he said. "These smaller banks don't want other banks getting in the mix with their corporate clients. A lot of the 'spend' and the activity in this market is defensive. No one wants to lose the clients that they have got."
Mr. Jenkins pointed out that the large health plans are creating their own banks in order to protect the clients that they have. Minneapolis-based UnitedHealth Group launched Exante Financial Services four years ago and has already accumulated $250 million of HSA deposits in 200,000 accounts.
In December, the Blue Cross and Blue Shield Association board of directors approved developing a bank - Blue Healthcare Bank - for members enrolled in consumer-directed health plans, health savings accounts, health reimbursement arrangements, or flexible spending accounts.
"Health-care providers are not just sitting back and taking it while banks come in and take their business away," he said. "They are getting into the banking business in a big way."
Brad Kimler, a senior vice president in Fidelity Investments' human resources services company, said advisers must consider and discuss health care as a component of total wealth management. Fidelity began offering its health savings account in December, he said, but even before that the Boston mutual fund giant had incorporated health-care savings into its retirement planning tools.
"Health care is the No. 1 overlooked liability heading into retirement," Mr. Kimler said. "Health savings accounts are just one form of savings for health care, and they probably won't provide enough savings to get someone the $200,000 they are going to need for health-care costs in retirement, but it is an appealing way to get people to think and make them aware of the looming health-care liability in retirement."
"If we are going to really help someone to create a lifetime of financial security," he added, we "have to include a discussion on health care and health savings accounts."
BenefitFocus' Mr. Jenkins said health savings accounts create the largest opportunity for companies like Fidelity and Vanguard.
"Five years from now there will be a lot of money in these accounts, and that really plays to the strengths of guys like Fidelity and Vanguard that know how to invest these assets," he said.
Despite this optimism about potential opportunities, adoption rates for health savings accounts remain thin. Jim Murphy, the president of CitiStreet, a joint venture of Citigroup Inc. and State Street Corp. that serves 11 million benefit plan participants, said financial institutions would love health savings accounts to gain momentum but that employers remain wary.
"For this thing to really take off as some pundits are predicting, you really need large employers to embrace the model and have the communication, education, and information reach the consumers," he said. "I am just not sure how quickly this will happen."
Mr. Jenkins said fewer than 10% of BenefitFocus' 89,000 corporate clients are offering health savings accounts to their employees but that he expects the proportion to reach 30% by the end of next year and 50% by the end of 2008.
Health savings account growth will develop similarly, Mr. Jenkins said, to how 401(k) plans grew in the early 1980s. Only 3% to 4% of employers offered 401(k) plans in 1984, he said, but by the late 1980s the product's share exploded.
"HSAs are still not completely understood yet by employees, but employers are preparing to pull back the veil and offer this product," he said. "We expect a quarter of assets spent on health care to be held in health savings accounts within the next 10 years."
CitiStreet's Mr. Murphy said that, ultimately, as deposits in these accounts grow, large banks (like his parent banking companies) with a developed brand and scale will accumulate most of the health savings account assets.
Mr. Jenkins agreed that just a few banks will collect most of the market share, but small specialist institutions like Webster Financial Corp.'s HSA Bank can remain big, he said.
"HSA Bank will remain big in this space," he said. "They have brand awareness and hundreds of thousands of accounts. I think large banks in this space, not just large banks in general, will gain assets."
