HSAs: Moving Beyond the Growing Pains

December 26, 2007


San Francisco, CA, USA January 7, 2008

Given a disappointing early showing, the HSA market is ripe for a remodel--one that will spur growth, customer churn, and market concentration. Over the next five years, HSA growth will hover between 40% and 50%, resulting in 12.5 million accounts by 2012.

Banks, insurance companies, and third parties have built the health savings account (HSA). In fact, hundreds of companies are involved in some aspect of enabling consumers to open and use HSAs. Celent estimates that there were 1.9 million HSAs in 2007, but this number will jump to 3 million in 2008, resulting in a boost in the growth rate from 36% (in 2006-2007) to 60%. Yet growth and revenues have been disappointing for most, reflecting a classic example of shortcomings on both sides of the economic equation for supply and demand.

In a new report, , Celent examines the impediments to growth in both high-deductible health plans and health savings accounts. Growth has been impeded by the fact that all providers involved, including employers, have underestimated what a monumental transition the HDHP-HSA represents. They wrongly assumed that, because employees weathered the transition from defined benefit to defined contribution plans so well, they would naturally embrace self-direction in healthcare. As result, there has been inadequate pre- and post-sale education, insufficient decision-making tools, and limited employer funding of accounts. Consumers are overwhelmed by the choices and are unable to conduct an adequate cost/benefit analysis.

"The next two years will mark a period of tearing down and rebuilding at select providers and stagnancy and exiting at others. The remodelers will gain market share during the expected strong growth years of 2008 and 2009. The market will bifurcate into manufacturers and distributors," says Alenka Grealish, author of the report and Managing Director of Celent's banking group. "Because manufacturing has a relatively high fixed cost component, it will be concentrated in the hands of around 20 providers, including HSA banks and HPAs," she adds.

Despite the flat growth curve, Celent expects the market to experience growth based on 2008 enrollment and remodeling efforts. During the growth spurt, the HSA market will be up for grabs. Celent believes that over the next 24 months, the market will experience churn as consumers shop for a better offer--one not necessarily based solely on price but also on customer service and other services (e.g., expense management tools). Paramount to a successful remodel is pleasing the consumer and generating positive word of mouth. During this period, banks, which add value, will have a chance to gain higher ground.

This 38-page report contains 18 figures and five tables. It profiles the business models of the top 15 HSA providers as well as up-and-coming innovative players. A table of contents is available online.

Members of Celent's Healthcare Banking research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

San Francisco, CA, USA January 7, 2008

Executive Summary 03
The Market Demand 05
  Shallow Growth Curve 05
  Employers Increasing HDHP Demand Supply 06
  Government Impact: Net Positive 08
  Small Business Not as Eager as Expected 09
The Market: Supply 11
  Models in the Lead Today 11
  Leading Players and Models 17
  Ascendant Models 19
Growth Inhibitor: Shoddy Construction 25
  Consumer Knowledge Low and Wariness High 26
  Customer Service Complaints 27
  The Fee Challenge 28
Growth Hormones: The Remodel 30
  Architecting a Remodel 30
  The Next-Generation HDHP 32
  HSA 2.0 33
  Remodel Partnerships 34
  Glimmer of a Defined Contribution Model 35
2008-2009: Tearing Down and Rebuilding 37
Appendix: HSA 101 39


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