The recent announcement by the Blue Cross and Blue Shield Association that it will charter a Blues-branded bank is just one more example of the health insurance industry's growing pervasiveness in the national culture-and wallet.
The association also is partnering with Visa on a co-branded debit card and is only the most recent to go charging into financial services. UnitedHealth Group chartered its own bank, Exante, in 2002, and Kaiser Permanente is piloting a credit card offering a dedicated line of credit for healthcare services to members with health savings accounts tied into the new species of high-deductible, consumer-driven health plans.
Meanwhile, the financial services industry is not sitting idly by as the health insurance industry makes a grab for a potentially rich source of new business. Most recently, Fidelity Investments late last year launched a Fidelity-branded HSA "to help employers mitigate and reduce health benefit costs, while empowering employees to better control healthcare expenses today and save for future healthcare costs in retirement," according to its news release.
Indeed, the wide open and still largely unexplored territory referred to as consumer-driven healthcare (See related story, p. 28) may open up a frontier in which the newly beefed-up national health plans will find themselves muscling in against the nation's equally formidable bankers to stake claims in the asset management arena.
If a wholesale shift toward consumer-driven healthcare occurs, as some anticipate, "Then it's all about asset management," said Lorrie Warˆ¡ner, managing director in the healthcare group at Citigroup. "What insurers fear is becoming irrelevant to a large part of their constituency."
As a result, a turf war with the healthcare consumer as the prize could be in the offing. At stake will be as many as 25 million HSAs holding $75 billion in assets by 2010, according to projections by DiamondCluster, a management consulting firm. Technology and marketing research company, Forrester Research, more conservatively predicts that by 2012, HSA-related fees will top $1 billion. Even more potentially troubling, some said, will be the developing rivalry between bankers and health insurance companies over customer loyalty.
In the same way that the retirement-planning landscape is evolving from defined-benefit pension funding to the defined-contribution world of 401(k)s, the healthcare benefits landscape is poised for a fundamental shift in who ultimately contributes to the plans and who manages their vast assets. As consumer-driven health plans gain traction, employees will be trading in their defined-benefit health plans, which are primarily funded by employers, for less-restrictive health plans that place more funding demands on the employee but also offer more choice and portability.
Officials at the Blues say rather than positioning itself to take advantage of another potential revenue source, Blue Health Care Bank, as it has been named, is being chartered merely as a support tool for providers and consumers as they ride the expected wave of consumer-driven health plans. Such plans typically offer high-deductible insurance benefits supplemented with tax-free HSAs that employees contribute to on an annual basis and carry with them from job to job to cover out-of-pocket healthcare costs. It is generally acknowledged that to stay competitive, health plans will need to seamlessly manage and integrate those accounts or partner up with somebody who can.
More a business-to-business enterprise, Blue Health Care Bank will be "a very focused bank that supports Blue Cross and Blue Shield plans' offering of consumer-directed products," said Jody Voss, executive director of business development for the association. "This is just a single purpose to support the management of those personal savings accounts ... It's not a lot of bricks and mortar."
This month, the association is filing applications with federal and Utah regulators and anticipates that it will be fully operational in 2007, Voss said. The bank will be established as an independent company managed by banking experts and an independent board of directors with headquarters in Salt Lake City. So far, 31 of the 39 Blue Cross and Blue Shield plans across the country have said they will participate. Employers signing on with Blues plans won't be required to bank with the association.
"Our goal is to simplify the healthcare source of information and payment for both consumer and provider," Voss said. "You can always put your health savings account in whatever bank you choose, but the level of service you get will be differentiated."
At Highmark Blue Cross and Blue Shield, which views the integration of the health insurance and financial services industries as inevitable-although it's now a very small piece of the Pittsburgh-based health plan's business-the company is planning to partner with the Blues bank, said Michael Weinstein, a Highmark spokesman. "Down the road, what we're seeing is that we will have to be involved in more real-time processing, similar to the way people use ATM cards," Weinstein said.
UnitedHealth similarly envisioned the future when in 2002 it chartered Exante Financial Services, also based in Utah, said Philip Philliou, Exante's chief product and strategy officer. Established as a business unit of UnitedHealth Group, Exante provides consumer health-reˆ¡lated financial services, HSAs and debit cards to UnitedHealth companies as well as 16 independent health administrators outside the comˆ¡pany, he said. Like the Blues, banking with Exante is not a requirement for UnitedHeath customers, although it is encouraged, he said. "It's about empowering consumers to make good decisions," Philliou said.
Health savings accounts are slowly taking off-only 1% of the working population, or 1 million families, have a consumer-driven health plan, according to a recent Commonwealth Fund survey. But UnitedHealth has experienced a growth spurt in recent months. Exante is now managing 100,000 HSAs, up from November 2005, when Exante managed $40 million in deposits in 60,000 HSAs, according to Philliou.
Unlike other health plans, which are rolling out debit bank cards to streamline the paying of out-of-pocket costs at the point of care, California-based Kaiser Permanente is offering members an actual credit card. It is being piloted in Denver and Hawaii in partnership with GE retail credit, said Ted Wise, Kaiser's senior vice president for health plan strategy and product innovation. The card offers a dedicated line of credit for healthcare services only in Kaiser facilities. Customers pay about 10% annual interest on outstanding balances, he said.
Kaiser, which as a clinic-based HMO considers itself the paragon of integrated healthcare, boasts that the credit card is just one product in a comprehensive program offering support for HSAs in partnership with Wells Fargo bank. Right now, nearly 200,000 of Kaiser's 8.5 million members are enrolled in high-deductible health plans, but the number is rapidly growing, considering two years ago there was no one enrolled in any plan, Wise said. "What we see down the road and are actively working toward is a broad range of interests and needs," Wise said.
Consumers have opened more than 1 million HSAs since they were created by the Medicare Modernization Act of 2003, and are now opening more than 50,000 such accounts monthly, according to a DiamondCluster report. The last time financial institutions saw such an opportunity was in 1974, when individual retirement accounts were introduced. IRAs now hold more than $3 trillion in assets. Based on HSA account growth so far, DiamondCluster believes HSA assets will grow even faster than IRA assets did when first introduced. About $200 billion of cumulative revenue will be "in play" over the next five years with health plans standing to lose as much as $140 billion of that from the transition to less expensive consumer-driven plans, according to the study. Pharmaceutical companies, the government and providers also stand to lose revenue.
HSAs offer three sources of revenue: HSA account management fees; asset management fees for any unspent assets invested in stocks and mutual funds; and account transaction fees, according to Forrester. An explosion to more than 6.3 million HSA accounts in 2008 from 391,000 in 2005 will generate almost $250 million in account management, $26 million in asset management and $130 million in transaction fees in 2008, Forrester projected. Forrester also projected that by 2012, HSAs will hold nearly $35 billion in assets, while approximately $26.6 billion will leave HSA accounts to pay healthcare providers.
Looking for account fees
It will take time for HSA assets to accumulate but that won't keep banks from entering the business because HSA custodians-traditionˆ¡ally banks but also insurers with life insurance products-are not just in the business to manage the assets, Forrester said. A significant portion of HSA revenue will be generated by account and transaction fees, especially in the early stages of an HSA life. Forrester recommended that health plans aim for at least a portion of that revenue.
Despite the fees at stake, health plans are not opening banks "for an asset play" to offset the shrinking premiums of high-deductible, consumer-driven healthcare plans, but to provide better service to members and hang on to their "book of business," said Katy Henrickson, a senior analyst with Forrester and lead author of the report. "I don't think that health plans are as concerned about the loss of premium revenue as they are of the loss of the person," Henrickson said.
Actually, the Blues is "certainly late to the game" of banking, as many health plans have already partnered with financial services companies such as Wells Fargo and HSA Bank, according to anˆ¡other Forrester report authored by Henrickson.
Health plans are offering banking services more as a business-to-business service to support their core enterprise of providing healthcare benefits, said Paul Ginsburg, president of the Center for Studying Health System Change. Banking is the easy part compared with the health insurance part, he said. Providing banking services to the regional Blues plans across the country will help the plans compete with large national companies. "To the degree (the Blues-branded bank) supports the health plan and makes the product more seamless for consumers, that's a positive," Ginsburg said.
Others are far more skeptical of the health plans' motivations for moving into financial services and even more skeptical that they will succeed. Warner of Citigroup notes that 20% of the insured population generates 80% of the medical costs. Consumer-driven healthcare is expected to take hold with the 80% of the population that consumes very little. If so, that large segment of the population will be more in need of expert investment managers than in health insurers, she said.
Insurance companies might claim that they can offer a seamless, integrated product for the patient that needs to start spending from the account, but what kind of track record do health insurers have in managing assets in what is already a very crowded space, she asked. "My personal opinion is that it is likely to be a fairly slow process getting consumers to look at insurers as" asset managers, Warner said. "And by and large the consuming public makes its decision based on the track record."
The banking industry is hardly taking competition from the insurance industry lying down. In December 2005, the American Bankers Association and the American Bankers Insurance Association partnered to form the HSA Council, described in a news release as an organization of banks, insurers and technology leaders "committed to increasing the distribution of health savings accounts through banks." In the future, the healthcare consumer will have more responsibility for managing and paying for healthcare costs and to do that, consumers will "have to partner with somebody that can help you manage the funds in your health savings account," said Kevin McKechnie, the HSA Council's staff director and associate director of the ABIA, an ABA affiliate. Bankers traditionally have stuck to doing what they know how to do best and that is "wealth management," he said. Most consumers will probably change jobs over a lifetime, but not their HSAs, so they will need to partner with a bank that is able to manage the funds and grow the assets. "When future needs become present needs, (the consumer wants to be sure) the money is there," McKechnie said. "That's what the banker is there for. I don't know what the health insurance industry's strategy is-probably the same ... We wish them luck."
Sitting along the sidelines, providers can't help but think that they will be the losers when those riding the wave of consumer-driven healthcare wipe out. "Banks are becoming insurance companies and insurance companies are becoming banks," said Richard Wade, a spokesman for the American Hospital Association. "When it goes sour, they will ask providers to take less and subscribers to pay more."
Employers, however, are taking a "wait and see" attitude toward consumer-driven healthcare and are not very concerned about who wins the battle over the management of HSAs, said Steven Wojcik, vice president of public policy at the National Business Group on Health, an association of large employers focused on healthcare issues. Nevertheless, Wojcik said he believes that health insurance companies will need to worry more about the financial services industry than vice versa. "I think probably the larger trend in the long run will be financial services moving into the territory of the health insurance companies as we move more toward consumer-driven health accounts, electronic health records and electronic payment," he said.
Michael Taylor, a principal with Towers Perrin, a human resources consulting firm, said he has little concern that the big national health plans will be strong-arming employers to bank with them. "Employers have banking relationships for business reasons, and it's unlikely they will break those." Rather, the health plans are merely trying to protect their existing territory before the financial services industry moves in, he said.
"I think part of the Blues' reason to get in (to banking) is to protect their brand. They are very powerful, but so are the brands that come with banks," Taylor said.
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