Life insurers eye share of health savings windfall.

Life insurers with strong asset-management capabilities may be well positioned to capitalize on a big pool of assets if consumer-driven health plans take off in the coming years as many predict.

Jerry Ripperger, director of consumer health for Principal Financial Group Inc., said that in the future, health savings accounts are going to become "mini-401(k) plans." The company's large retirement plan clients are viewing them as an "add-on" to the retirement plan, he said.

HSAs allow individuals or their employers to contribute pretax funds into tax-free savings accounts that may be used to pay for qualified medical expenses. The plans must be linked to high-deductible health insurance plans. The plans are called "consumer-driven" because employees, rather than employers, pay for a greater portion of their health-care costs and therefore have a financial incentive to cut their health-care spending.

Over the next five years, financial services companies and health insurers will compete for billions of dollars in revenue, mostly driven by HSAs, according to estimates by consulting firm Diamond Cluster International. The firm projects that by the year 2010, HSAs annually will generate more than $1.25 billion in transaction-processing fees, $457 million in account-management fees and $834 million in asset-management fees.

The lower-premium, high-deductible health plans place "pressure" on health insurers' revenues, said Aamer Baig, a partner with Diamond-Cluster's financial services practice.

So health insurers are busy strategizing, observers say. Many of the big health insurers have formed partnerships with banks for the HSAs linked to their consumer-driven plans. United-Health Group Inc. is the only health insurer thus far that has created its own bank. UnitedHealth's Exante Bank provides consumer health financial services--HSAs and debit cards--to UnitedHealth companies, as well as to 16 independent health administrators. The Blue Cross Blue Shield Association has announced it will charter the Blue Healthcare Bank.

Principal's capabilities with HSAs are in-house, said Ripperger. Principal Life Insurance Co., a unit of Principal Financial, sells high-deductible health insurance plans in 29 states. Principal Bank, another subsidiary, provides the bank products, and Princor Financial Services Corp., Principal's broker-dealer subsidiary, distributes 40 of Principal's own mutual funds.

The investments are "what will differentiate, long term, the success or failure of health savings accounts," Ripperger said. At Dec. 31, 2005, Principal had 6,500 HSA accounts with $5.6 million in deposits.

A significant number of people will use HSAs as health plans, he said. But the other 20% who take out HSAs view them as an "accumulation vehicle" for post-retirement needs, he said, citing Forrester Research. "Why would I look to my health insurer to help provide for my post-retirement needs?" he said. "I am going to tend to look at my accumulation providers, my pension providers, my 401(k) plan."

But whether health insurers or retirement companies win the HSA race is unknown, Ripperger acknowledged. "For the next five years, we're in the wild, wild West," he said.

Indeed, wild. Property/casualty insurer State Farm is getting into HSAs, with help from its 16,000-plus agents. Customers shopping for homeowners and/or automobile insurance may Fred a health insurance policy that fits their needs as well. State Farm Bank is experiencing "quiet success" with HSAs, said Terry M. Nichols, the bank's president. State Farm also has joined with Assurant Health to provide a high-deductible health plan, he said. The bank holds about 12,500 HSA accounts and about $17 million in deposits. The HSAs offer an "attractive interest rate," Nichols said.

Health insurer Humana Inc. has joined with two banks, JP Morgan Chase for individuals in HumanaOne plans and UMB Bank of Kansas City, Mo., for members in Humana's commercial plans, said spokeswoman Mary Sellers.

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