Time to Offer HSAs?

Wells Fargo announced at the end of May it planned to exit the health savings account marketplace by selling its HSA business to one of the HSA specialty banks.

This sale follows similar moves by other financial institutions, including U.S. Bancorp, M&T Bank, JPMorgan Chase & Co., Huntington Bancshares Inc., The Bancorp Inc., and insurer Assurant Inc. The banks have said that HSAs no longer fit their long-term business strategies.

According to Devenir, a leading independent investment advisor in the HSA industry, the number of health savings accounts grew to 16.7 million by the end of 2015 (up 22 percent for the year) with $30.2 billion in assets (up 25 percent).

Additionally, HSA investments grew in 2015 to $4.2 billion, a growth rate of 33 percent year over year.

Questions to Ask

Given this continued growth, you may be asking yourself the following questions:

• Why would full-service providers with national recognition exit the HSA business? 
• Why are the Fidelitys of the world entering the HSA investment market?
• Why should credit unions enter and grow their HSA business now?

Consider how the majority of HSAs get started. An employer researches its employee benefit options for medical coverage and elects a consumer-driven or high-deductible health plan.

Originally, many providers had a subsidiary offering HSAs or partnered with a bank seeking to gain these accounts en masse.

But as public and private healthcare exchanges became more prevalent after the Affordable Care Act, many consumers were left to find their own HSA solution without proper education.

This knowledge gap also exists for employees at companies moving to a defined contribution-type employee health plan, where an employer provides an allowance or extra pay to employees designed to purchase their own health care outside any employer involvement.

Take a look at the organizations exiting the HSA business. Many of them treated HSAs as a unique demand-deposit account and expected average consumers to understand their need, then come into the branch and establish the account.

Herein lies the fault in the plan. Unless the consumer had an HSA previously, that is unlikely to happen.

Thus, HSA growth was lower than what these organizations expected, and led them to believe HSAs would not achieve investible balances for their investment arms. (This is the point when the HSA covers the annual deductible and the HSA accountholder is looking to invest beyond the DDA or savings account [e.g. mutual funds] for longer term.)

Alternatively, Fidelity and similar organizations have found health savings account balances are growing and investors are contributing more the longer the HSA is in place.

Plan owners are also learning to understand the substantial role HSAs can play in addressing health care concerns and long-term care needs.

To continue this momentum, more eligible consumers need to be educated on how to establish HSAs, use their dollars wisely and save for future needs.

The Opportunity for Credit Unions

The credit union mantra has often been to serve the underserved, and the HSA marketplace has evolved to be exactly that—underserved.

At the end of 2015, only 817 credit unions had HSA assets, holding an estimated $1.18 billion. Credit unions can be successful in this market space but need to focus on the following three key issues to continue to find room for growth.

1. Member Education

Because of their local community involvement, credit unions have a greater ability to educate potential and current members about the benefits of HSAs.

Members generally trust their CUs to offer guidance for their current and future needs, so take advantage of the opportunity to educate them on the benefits of HSAs.

This can be done through electronic newsletters, banners on statements, partnering with local benefit providers or health care brokers, local advertising to attract new members of all ages and, most importantly, through savvy member service representatives.

2. Growth from Transactional Accounts

Credit unions offer competitive checking and savings accounts and debit cards—the primary tools for the initial HSA member account—and most current account platforms have HSAs available.

While HSAs require special tax reporting similar to IRAs, most credit unions already have this reporting capability available to them their core processor.

As most HSA accounts include a debit card tied to the account and from which accountholders use to pay for health expenses, the majority of the funding for these accounts can be driven through debit card interchange fees and minimal monthly account fees, which are likely to be less than what members may be paying to a HSA provider through their employer.

The key is to understand these accounts start small in generating transactions, but will likely increase over time with the member’s experience and better planning, and will evolve to the point of having investible balances.

3. Employer Changes

When an employer offer employees a high-deductible health care plan bundled with an HSA, they often pay the minimum account fees.

However, when the employer changes providers in an ongoing effort to provide an affordable benefits package (which can occur annually), this often leads to a change in the HSA provider.

It also means the employer will work with the new HSA provider. If employees elect to keep the previous HSA account open, they will now be responsible for any related fees.

This opens up the opportunity for a credit union to educate members and consolidate the unsupported accounts into its own competitive HSA.

The process repeats itself when a member changes employers. Remember, the HSA is owned by the employee (your members), so when the employee changes employers, the employer stops supporting the HSA and those terms and conditions fall to the member.

The unspoken opportunity here is whether the credit union wants to seek out local employers to offer HSAs to their employees. It is a cross-sell opportunity in the making.

What Is Needed

The key to success is a solid marketing and education plan. You know best how to reach your potential and current members, but it is critical your staff be well prepared to discuss HSAs.

CU employees should be educated on the following HSA topics to ensure their experience with HSA members is a success:

• eligibility,
• contribution limits,
• eligible distributions,
• rollover rules, and
• tax reporting.

Misinforming a member on any of these key topics will lead to a bad experience and could damage your credit union’s relationship with the member. This type of HSA education is readily available and accessible to credit unions.

HSAs Could Help Your Credit Union

When you hear about large players leaving the HSA marketplace—a space that shows continual growth and opportunity—you may wonder if they took all of the proper steps to drive their HSA business, or did they have the mindset the HSA is just another account people don’t understand?

Now is the time to help your members understand and use an HSA to its full potential. Doing so will help you acquire members for life.

Steve Christenson is executive vice president of Ascensus, Dresher, Pennsylvania.