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Growth and change foreseen for HSAs.

HEALTH SAVINGS ACCOUNTS HAVE GAINED a foothold in the market, according to a report from Celent LLC, which says the plans will undergo both significant growth and change in the market over the next year.

In a report titled, "HSAs: Moving Beyond the Growing Pains," the consulting firm argues that the market for health savings accounts "shows potential" despite slow early growth. The HSA market can be expected to grow by 60% between 2007 and 2008, according to the report, with much of that growth being driven by large employers implementing or revamping an HSA option for their employees, or smaller employers moving their health plans entirely to HSAs.

Since their introduction to the market over 3 years ago, HSAs "are just becoming mainstream," the report notes. While 4.8 million high deductible health plans, which accompany HSAs to provide coverage for catastrophic problems, have been sold, Celent estimated that there are only 1.9 million HSAs that have been established and the product's penetration into the private sector is estimated at only 8%.

Among the problems, the report says, is that HSA providers assumed that because employees had taken to changes elsewhere in their benefits, such as the move from defined benefit to defined contribution retirement plans, they would also embrace a change providing more "self direction" in their health insurance benefit.

As a result, Celent says there has been a lack of education, decision-making tools and employer funding. Consumers have also been "overwhelmed" by the choices involved with HSAs, the report notes, and have faced difficulties conducting a cost/ benefit analysis.

Adding to the problem, Celent notes, is that establishing an HSA is optional for those who purchase a high deductible health plan, which has led to low take-up rates. However, the report notes that a higher percentage for HSAs has "proven achievable," specifically if the employer offers a generous contribution.


Celent says it expects more HSAs to be set up as employers revamp their health care options, reaching an estimated 3 million during 2008.

Given the importance of health care and insurance as a campaign issue, Celent notes that high deductible health plans and HSAs could be affected by the myriad of state and federal proposals being floated. The two products have been a "lightning rod" in politics, the report notes, but in general Celent says it believes that the growth of the market will, if anything, be helped by state plans that will be looking to reduce their uninsured population.

While the future may hold opportunity for those in the HSA market, the report also predicts significant changes in the market that will change how companies manage their HSA business and could lead to a thinning of the herd.

"The next two years will mark a period of tearing down and rebuilding at select providers and stagnancy and exiting at others," says Alenka Grealish, author of the report and managing director of Celent's banking group, adding that those who remodel can expect to reap the benefits of increased market share during 2008 and 2009.

"The market will bifurcate into manufacturers and distributors," she adds. "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."

For mid-sized and larger banks, the report predicts that the HSA business will become one of high volume with low to moderate value. Those companies will face challenges keeping their costs to service such accounts low, according to Celent, and will face the added obstacle of keeping fees down to compete for customers and build account balances.

However, one area in which Celent predicts HSAs could become an attractive business for banks is that involving affluent individuals who are near retirement or retired.

In the report, Celent says it expects brokers will "regularly draw in funds" from HSA holders that are unsatisfied with their initial account and establish a second HSA. Such double accounts have already been occurring the report notes, and can be expected to continue as the "baby boom" generation reaches retirement.

As a result, the report suggests that banks will have to focus their efforts on HSAs on not only growing the business, but retention as well.


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Title Annotation:HEALTH INSURANCE; health savings accounts
Author:Brady, Matt
Publication:National Underwriter Life & Health
Geographic Code:1USA
Date:Jan 14, 2008
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