Signed into law December 2003, interest in Health Savings Accounts (HSAs) continues to grow. In 2004, according to the United States Department of Treasury, roughly 240,000 individuals filed tax returns with the IRS reporting HSA deductions. By December 2006, Information Strategies, a leading industry information source, reported 3.6 million HSA accounts covering 8.7 million insured individuals. By 2010, they project there will be more than 23 million HSA accounts and the amount of HSA deposits will exceed $94 billion.
By 2010, local banks and credit unions are expected to control a quarter of the custodial market. HSAs offer credit unions a source for new deposits, stable new members and increased member ‘stickiness’. They also require custodians to become familiar with consumer driven healthcare, healthcare banking, and new regulations.
For credit unions interested in entering the HSA healthcare market, there are many issues to consider. Whether you’re interested in taking a less aggressive retail approach or considering an institutional tactic that may yield higher application volumes and larger deposits, HSAs are a product worthy of investigation.
Three key issues when considering your approach:
- Understand the healthcare industry presence and healthcare needs of industries within your credit union’s footprint. Reach out to your existing business members in particular to gain an understanding of how healthcare costs are impacting their business.
- Will you take a retail or commercial/institutional approach? A retail approach might include signing up individuals/walk-in members whereas an institutional approach may incorporate group sales efforts to employers of all sizes. These approaches may require different product features, different resources and differing levels of automation.
- Undertake a realistic assessment of your capabilities to provide HSAs. Do you have or can you develop the healthcare banking expertise needed to sell and support such a product?
A different animal
Once you’ve determined your approach, what’s next? Don’t assume the administration of HSAs falls within a particular department within your credit union. Organizations often have a tendency to lump HSAs with IRA administration. Others assign it to those responsible for cash management services since relationships with employers can be key to a program’s success. While HSAs resemble IRAs in some ways, it is important for credit unions to become educated on issues surrounding the product. HSAs are a dynamic market and you can’t assume someone’s familiarity with IRAs is sufficient experience to piggyback the two.
For example, the HSA product incorporates debit cards, checks, cash management, employer involvement, unique regulatory requirements, etc., so a credit union will need to educate and train its employees. It’s a different product so it’s important to expect it to behave differently.
Assign the product to a business owner who will champion the offering. You’ll want someone to take the initiative and keep up with legislative and regulatory updates, marketplace adoption and service issues. It’s important that a custodian or trustee understand contribution limits, acceptable transactions, ERISA requirements, IRS tax treatment, and IRS reporting requirements, etc.
Your staff will need to understand the complexities of this offering and address scalability from an internal operations perspective. Adopting operational efficiencies is crucial, particularly if you’re working with institutional members and anticipate seeing larger volumes.
Should you adopt a retail approach, you can apply existing processes like opening HSAs at the new accounts desk and accepting deposits at the teller line. If you develop a commercial or institutional approach, you’ll need to be aware of the volume potential and the mechanisms needed to support employers and their employees directly.
Processing a handful of applications initially is one thing, but should your volume escalate, you’ll be required to provide services like supporting mass enrollment and contribution files from employers and fulfillment services for group enrollment. A retail approach, but more importantly an institutional approach, will prompt you to investigate automation to streamline and simplify processes. Think about scalability and have an automation plan available as an option.
And finally, what does a competitive HSA product offer? While HSAs are in their infancy, most products today offer:
- Record keeping
- ACH/debit card/checks
- Cash management
- Consumer access (Web, IVR, statements)
- Call center
- Compliance, tax reporting
Leading products also offer:
- Health & wellness information
- Competitive investments
- Credit line
- Multi-purse or “stacked” combined purpose debit card
For additional information on HSAs as alternative deposit avenues, visit the Healthcare Banking Web site at www.healthcare.opensolutions.com.