Partners and Rivals

As growth in the health savings account market skyrockets, health insurers and banks are simultaneously partners in the value chain and rivals seeking to control customer relationships.

The Customer Experience

In addition to financial technology-related challenges, partners also face the issue of meeting consumer needs for information relating to procedures, providers and costs -- "cost and quality" issues, in the jargon of healthcare. "Whoever is planning to own the customer or manage the customer experience -- banks and insurers are tiptoeing around the issue because both want to do it -- they need to be able to provide the customer with the right information at the right time: when the customer actually has a need," Baig says. "Neither banks nor insurers have good tools to help the customers make the decisions."

Given the need to act within a narrowing window of opportunity, banks and insurers may be well-served by relying on niche vendors such as WebMD (New York) or Subimo (River Forest, Ill.) to provide the necessary tools, Baig suggests.

Vendors also are seeking to bridge gaps on the payment-processing side. "In order to make all of this work, banks and insurance companies need to have new linkages and capabilities, because as you get into this space, you enter a gray zone between what banks and insurers do," asserts John Reynolds, president, Metavante Healthcare Payment Solutions (Milwaukee).

For example, some banks have sought to respond to consumer demand by simply creating interest-bearing accounts and labeling them HSAs. That is inadequate, Reynolds says, because, "In order to maximize tax advantage, most employers are looking for a combined product," such as an HSA/flexible spending account suite.

HDHPs reduce premium costs, and associated accounts encourage employees to set aside pre-tax dollars. "In essence, it's part of a payroll reduction strategy: The more pre-tax dollars are flowing to these products, the lower the employer's FICA liability," Reynolds explains. The problem is that in the absence of integration between the accounts, "I, as a customer, can't go out and see -- simply, through a single portal -- simultaneously where I am relative to my FSA and my HSA balance," Reynolds adds.

Customers also need to see where they stand with respect to their deductibles in a given year and their out-of-pocket maximums so that they know at the point of sale when they should be getting full reimbursement or if they have crossed over the line into their area of financial responsibility. "That's a piece of information that requires coordination for the insurance company to be able to push that to the bank and represent it back to the customer," Reynolds says.

In addition to speed, payment processing companies also provide economy of scale, particularly to smaller banks and insurers, according to Celent's Grealish. "If your core processing is done by Metavante or Fiserv [Brookfield, Wis.], it won't be as expensive, but it will limit the bells and whistles you can offer," she asserts.

While those vendors do work with many of the largest insurers and banks, Grealish suggests that the high degree of customization in major financial institutions' systems will require greater investment to launch attractive HSA offerings. "If you're going to go full bore in the attempt to be one of the preeminent providers to Fortune 1000 companies, your costs would probably start as high as $5 million, depending on how much functionality you have online and how much you offer in the way of value-added services," she says. "That would include things like call center reps conversant with HSAs, people who can provide relevant information to HR departments, whether you want to build an employee training course, etc. -- you get into big money."

The Rise of Health Savings Accounts

How Much Do Insurers Stand to Lose?

Health savings accounts present an enormous opportunity for banks and investment companies because they are likely to divert vast sums of money from health insurance premium payments into cash accounts and investment vehicles. With that in mind, conventional wisdom says that banks have everything to gain and insurers have everything to lose. But is the conventional wisdom right? Not entirely.

It's true that the majority of large group insurance providers faces a challenge in compensating for lost premium. However, for providers of individual and small group policies, HSAs simply represent the next step in consumer-directed healthcare for their already very engaged market.

But even in the case of HMOs, the threat has been exaggerated somewhat, according to Walter Stark, assistant treasurer for Lexington, Ky.-based Humana ($6.9 billion in assets). "We collect premium and pay claims. If the premiums go down because of high-deductible health plans, our medical claims and administration costs also go down," he says. "The relativity between premium and claims paid stays the same, and so the net margin stays the same."

Health insurers also can select financial partners with whom they can negotiate cost and revenue-sharing arrangements, allowing carriers to tap into new streams of revenue, according to Stark. "How can we do that? Because we're bringing them customers," he says.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio