PFPC Inc.’s agreement to provide investment processing and subaccounting services for ConnectYourCare’s health savings accounts will help meld the financial services and health-care silos that make up the accounts, according to Terry Hunter, ConnectYourCare’s chief executive officer.
The pact fulfills analysts’ predictions that HSA providers would need partnerships to help them provide the accounts efficiently and cost-effectively.
Baltimore-based ConnectYourCare, a unit of Revolution Health Group that outsources health-care administration for employers and benefits brokers, signed a deal last month with First Data Corp. for payment processing. Its objective has been to combine its health-care administration services with investment and payment processing to create a turnkey product for consumers, Mr. Hunter said.
Outsourcing the processing and health-care administration components of health savings accounts can free banks to focus on marketing and distributing HSAs to their customers rather than dealing with things outside their core expertise, said William Salus, an executive vice president and the head of global business development at PFPC, a Wilmington, Del., securities-processing subsidiary of PNC Financial Services Group Inc.
“If the market sees a strong turnkey operation, it can focus on where it’s going to sell the product and deliver the product,” he said. “There’s a lot of complexity underneath the surface that you need to navigate through so that the ultimate consumer feels comfortable with HSAs.”
DiamondCluster International Inc., a Chicago management consultant, and Goldman, Sachs & Co. said in a study released in December that since no single player can provide end-to-end service, there is significant movement across the HSA industry as existing players seek to establish their position or build new capabilities.
The study predicted that 15 million to 25 million health savings accounts will have been opened by 2010 and will hold more than $75 billion of assets.
The agreement with PFPC will help ConnectYourCare broaden its roster of commercial bank clients, according to Mr. Hunter.
“It clears a path for us to work with any commercial bank in the country,” he said.
PFPC’s subaccounting prowess was an important factor in ConnectYourCare’s selection of it for investment processing, Mr. Hunter said.
ConnectYourCare’s current bank clients, including UMB Financial Corp. in Kansas City, Mo., do their own subaccounting for the health savings accounts they offer. But banking companies like UMB cannot process investments for other banks that offer health savings accounts because they are considered competitors, he said.
PFPC’s agreement with ConnectYourCare is contractual rather than a revenue-sharing deal, he said. “I pay them a certain amount, and we negotiate on the front end with the employers or the banks” that are supplying the health savings accounts to their employees or customers, he said.
Since 2004, PFPC has provided investment processing and subaccounting services to insurers and large companies that offer health savings accounts. Its ability to handle a large volume of accounts has given it an edge in the HSA industry, according to Mr. Salus.
PFPC supplies services for $1.9 trillion of assets in 62 million shareholder accounts.
“When you are looking at a new, growing market … you need an industrial-strength engine to deal with the activity in the account,” Mr. Salus said. “HSAs are really a savings vehicle in the short or long term, so you need somebody who’s comfortable in that environment and with that back-office or processing activity.”
