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A whole new world: consumer-driven health plans and health savings accounts are blurring the line between health care and financial services.

Health savings plans, which are linked to high-deductible consumer-driven health plan products, are supercharging innovation as both the insurance industry and individuals begin to understand that health savings accounts can transform not just health care, but also the whole spectrum of savings and risk management services.

Companies are integrating innovative products with more traditional offerings. Most exciting--or alarming, depending on your point of view--is the coming convergence of health insurance and financial services.

Health savings accounts are triple tax-advantaged: tax free when contributed; tax free as they grow: and tax free at withdrawal. The coming year will bring a broader and deeper understanding of consumer-driven health plans, particularly their health savings account dimension, with profound implications for the insurance sector and many financial services firms.

The new health savings accounts should be viewed as products within the full range of consumer-risk protection and wealth-building services, including transaction, protection, borrowing and accumulation components.

Transaction is the one area that already has seen significant activity and development. Debit cards are the current norm for health reimbursement accounts and health savings accounts, and their issuers are likely to push their services further into the back rooms of insurance to take on additional aspects of claims processing.

Protection of assets is essentially the insurance component. As the framework expands beyond health-care coverage, this will come to include life insurance and perhaps disability. The health-care portion will continue to migrate toward high-deductible plans, creating the need for mechanisms and products that bridge the gap between funds available for spending and the lower limits of the protection plan.

Borrowing products and services are likely to see the most innovation over the next year or two, closing the gap between high-expense years lot health care and leveragable assets in other accounts.

Accumulation products and services address the need to invest and manage longer-term savings and will be more important in five years or so, when health savings accounts have been in place long enough to have generated a critical mass of roll-over capital.

This broader framework, combined with the triple tax advantages of health savings accounts, is driving innovations in both insurance and financial services. They range from fairly obvious extensions of current capabilities to whole new ways of thinking about lifelong consumption and saving. Some of the more creative possibilities include:

* Annuities that could be purchased within a health savings account, allowing borrowing to cover the years of higher-than-expected health-care expenses.

* Mechanisms to optimize the long-term "triple tax advantage" of health savings account contributions and earnings, including borrowing against life insurance equity or borrowing from private retirement accounts. The goal is to reach the retirement finish line with the most tax-efficient mix of assets.

* Financial models and advisory services that optimize "surplus" discretionary contributions across clients' 401(k)s, Roth and Keogh plans and health savings accounts. Higher-income earners will want investment products that blend retirement and health-care savings.

* National pooling of catastrophic risk. Although the political parties might not agree on exactly how to do this, both could conceptually support this approach.

* Incorporating strong-form managed care, such as closed-panel health maintenance organizations, within the new high-deductible health plans that include the health savings account provisions and advantages. Insurance product innovation is likely to focus on ways to accomplish this.

* Improvements in disease management and other utilization-optimizing tools. These will become increasingly important, not just to employers and consumers trying to manage cost, but also to insurers themselves who will be struggling to control a coherent portion of the value chain.

The future is now sufficiently clear for insurers to launch truly strategic planning efforts--focusing on existential issues and bold strokes, rather than the more incremental approach apparent in recent years. Whether the convergence of health-care benefits with financial services constitutes a daunting threat or an historic opportunity likely will be decided on a firm-by-firm basis--depending on the planning and innovation that begin now.

Best's Review Columnists: Gary Ahlquist is a senior vice president in the Chicago office of Booz Allen Hamilton. Gil Irwin and David Knott are vice presidents in Booz Allen's New York office. They may be reached at
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Title Annotation:Selling Insight
Comment:A whole new world: consumer-driven health plans and health savings accounts are blurring the line between health care and financial services.(Selling Insight)
Author:Irwin, Gil
Publication:Best's Review
Geographic Code:1USA
Date:Apr 1, 2005
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