Health Savings Accounts (HSAs) have the potential to be a golden goose opportunity for credit unions to explore because of their rapid growth and potential by-products. Created in 2003, HSAs help individuals save for qualified medical expenses on a tax-free basis. HSAs must be coupled with high-deductible health plans (HDHPs), and the hope is that continued adoption of the accounts will alleviate increasing medical costs and expand insurance coverage. From a financial provider's standpoint, the opportunities inherent with HSAs are often compared to the creation and success of IRAs, so people are paying attention.
Growth! Growth! and more Growth!
American Banker reported at the end of 2006, Americans opened 3.6 million HSAs with $5.1 billion in deposits – triple the number of accounts this time last year. Predictions for the end of 2007 are at 8 million HSAs with $13.6 billion in deposits.
Attention From Our Leaders
HSAs were featured in the past two State of the Union addresses as part of President George W. Bush's proposal for health care reform. Last year, with President Bush's support, Congress increased the amount that could be saved in HSAs. In 2007, a person can contribute $2,850 if he or she has an individual policy and $5,650 in deposits can be made for a family. This same law change also allows a one-time rollover from Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs), and IRAs into HSAs. There is also no limit to the balance on the account.
Transparency & Fees
Since HSAs are a relatively young product, there are no standard requirements on disclosure of fees; annual fees, maintenance fees, transaction fees, etc. According to Vimo Research Group, a healthcare research firm, the annual fees charged by financial institutions for an HSA can be as high as $200 per year. Charges like that could almost negate the incentive for creating an HSA account in the first place. One credit union, Patelco ($4 billion in San Francisco, CA) has addressed this issue in the spirit of the credit union movement by offering one of the least expensive fee structures for HSAs, a $1 monthly maintenance fee.
Under traditional plans, the insurance company manages account balances, so they play the role of custodian for accounts. Under an HSA plan, the financial institution serves as the account custodian. This role change has resulted in some insurance companies forming banks because of revenue potential from account balances. According to Information Strategies, a New Jersey firm that tracks HSAs, approximately 1,200 financial institutions offer HSAs, including some 400 credit unions.
Accessories to Complement
Health care costs and options are an increasingly costly issue for Americans. And the current direction of health care is putting more of the spending decision power in the hands of the consumer. To facilitate these important decisions some credit unions are creating consumer-directed health care packages centered on HSAs that feature; Flexible Spending Accounts (FSAs), pharmacy card options, and automatic loans for medical emergencies.
Natural Postions for Part and Success
Credit unions are well positioned to participate in the HSA market. Most credit unions have pre-existing core sponsor and SEG relationships. The average credit union member is 47 years old while the average financial institution customer is 37 years old. This bodes well for credit unions because 70 percent of HSA accounts are held by individuals aged 40 and over. And new account holders will be more likely to start their HSA accounts at credit unions because of better rates and low or no fees. With HSAs credit unions benefit from new long-term members and new avenues for revenue and deposit growth. The golden opportunity is within reach with the right understanding, planning and partnerships.
To learn more about this opportunity for credit unions, join us for our new webinar series, Writing the Book on HSAs.