Health Savings Accounts: How Will the Stars Align?

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Health savings accounts will bring the next wave of bank-insurance convergence. Banks have everything to gain or lose. HSAs will generate millions of new accounts (15 million by 2010) and billions of deposits and assets under management (US$62 billion by 2010).

Rarely does a new financial product come along with the revenue punch of the health savings account (HSA). By offering a low-cost health insurance option, the HSA combined with a high-deductible health plan (HDHP) is poised to take off and lead to a significant shift in bank and insurance revenues. Around 5% of health insurance premium revenues will be replaced by net interest, account management, and fee income by 2010. Evidence of the opportunities unleashed is seen in the variety of participants clamoring for a role and market share, and in the diversity of strategies being pursued.

Alenka Grealish, co-author of the report and manager of the Banking group at Celent, recommends that banks develop a long-run strategy that encompasses not only growth in new HSAs but also retention. She added, "They must apply lessons learned on two fronts: 401(k)s and IRAs. Part of banks long-run stake in the HSA business will be secured by their offering a variety of investment options that satisfy account holders whose balances are growing."

Matthew Josefowicz, co-author and manager of the Insurance group, observes, "Although a few health insurers, especially those with a strong history in the individual products area, have moved aggressively into HSA/HDHPs, all health insurers need to determine their strategies in this area. For those that make the commitment to grab some of this rapidly emerging market, they need to make sure they understand the service and technology implications of this new product class."

The report examines the market dynamics behind the rise of HSAs, the potential business opportunity for banks and insurers, and the adjustments in service offerings and technology that are required to serve the market effectively. The report also highlights the early successes of key players like JPMorgan, Mellon, Wells Fargo, HSA Bank (Webster Bank), UnitedHealth, CIGNA, Assurant, and others.

The 32-page report includes 17 figures and tables. A table of contents is available online.

of Celent's Retail Banking, Wholesale Banking and Life/Health Insurance research services can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.