Banks Finding Roles In HSAs

October 13, 2004
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GRAND RAPIDS — The emergence of health savings accounts are providing banks a new business opportunity to help employers and employees manage the new style of health benefit.

In offering HSAs to employers, banks will take on the role of handling employee payroll contributions, providing investment opportunities for the money deposited in each individual account, preparing monthly balance statements and providing a debit card or checkbook that individuals can use when paying for a medical expense with funds in their HSA.

For Huntington National Bank, getting into the HSA business is a value-added service to business customers struggling to cope with the escalating costs of providing employee health benefits. The ever-rising cost of health coverage places significant financial burdens on employers, particularly small businesses, said John Irwin, senior vice president and commercial regional manager in Grand Rapids for Huntington National Bank.

That strain provides banks an opportunity to sell HSAs, which are seen as an option that employers can consider as a way to begin getting their health care costs under control.

“We talking about the viability of the companies in West Michigan,” Irwin said during the Alliance for Health’s monthly First Friday Forum, which this month was on HSAs and banks. “The viability of our client base is at risk.”

Created under the federal Medicare Reform Act enacted late last year, HSAs are combined with lower-cost, high-deductible health plans. They work in similar fashion to IRAs or 401(k) retirement plans by allowing employees and employers to make pre-tax contributions to a tax-free individual savings account.

Participants use the money in their HSA to pay for medical expenses such as doctor and dental visits, prescription and over-the-counter medications, medical products, premiums for long-term care insurance, deductibles or co-pays on their health plan, and to continue coverage under COBRA when they leave a job.

The law allows anyone under 65 years old who is covered under a high-deductible health plan or insurance policy — with a minimum $1,000 deductible for individuals, or $2,000 deductible for families — to form an HSA.

Employees or their employers, or both, can contribute up to the amount of the health plan’s deductible, to a maximum $2,600 a year for individuals, or $5,150 annually for families, into the account. Account balances roll over from year to year and the accounts are portable, meaning an employee takes it with them with they switch jobs.

As commercial insurance carriers and managed-care companies craft new high-deductible policies that work with an HSA, banks are stepping into the equation to handle the critical financial-management side.

“From a financial institution’s standpoint, where does the money go?” Irwin said. “Somebody’s got to hold the money and everybody’s going to be interested in that to expand their market base.”

Huntington Bank will begin selling HSAs in early 2005. Fifth Third Bank is among the other players in the West Michigan banking market that plan to soon offer HSAs.

“They obviously make a lot of sense and we will certainly have them as part of our product lineup,” said Larry Magnuson, director of marketing for Fifth Third Bank in West Michigan. “This is a fabulous opportunity.”

Banks generally have two routes to follow in pursuing HSA customers: partnering directly with a health plan or insurer, or selling straight to employers.

Priority Health, the Grand Rapids managed-care company with nearly 450,000 subscribers in western Michigan, has partnered with Mellon Financial Corp. for an HSA plan that it will begin selling in the first quarter of 2005.

Mellon Financial is presently working out arrangements with 25 health plans across the country, five of them in Michigan, to offer HSAs, said Raymond Lundsten, Mellon’s market leader in Michigan.

Mellon is convinced HSAs will become a “very big component” of health plan products in the years ahead, as the marketplace adopts new consumer-driven plan models that are designed to bring aspects of consumerism into the health care market to control costs, Lundsten said.

“This concept (HSAs) is at the heart of consumerism and that’s where we need to get,” he said.

Blue Cross Blue Shield of Michigan has just begun selling HSA plans for January 2005 renewals. It will not partner with a single bank, except for a possible pilot project, and will instead provide employers a list of “preferred” banks that sell HSAs, West Michigan sales team manger Jeff Rubleski said.

The Blues prefers to leave which bank to use to individual employers, he said. “They have banking relationships,” he said. “We think, from that perspective, to let the market decide.”

While some worry that the emergence of HSAs and consumer-driven health plans that feature high deductibles will create collection issue for hospitals and physicians, as patients become increasingly responsible for first-dollar costs, the participation of banks can help to stem any problems, said Ed Ozark, a senior consultant with Varnum Consulting in Grand Rapids.

Banks have the technology to arrange payment methods and will bring new ideas to the market as HSAs catch on with employers, Ozark said.

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