H$As: Sharing
Consumer-directed healthcare is as much about shifting responsibility and cost to consumers as it is respecting their autonomy, and the jury is still out as to which consumers, and to what extent, will benefit from health savings accounts (HSAs). Created in December 2003 as part of the Medicare Modernization Act (MMA), HSAs allow individuals enrolled in high-deductible health plans (HDHPs) to accumulate funds that can be used for health expenses, including those not covered by their health plans, such as dental and vision treatment. What is certain, however, is that the transfer of funds traditionally directed to the payment of insurance premiums into cash accounts presents a potentially huge opportunity for banks.
Some insurers are seeking to offer an end-to-end HDHP/HSA solution by creating their own banks to serve as custodians of the accounts -- notably United Healthcare's Exante and the Blue Cross Blue Shield Association's Blue Healthcare Bank. But given the brand power of established banks and insurers' reluctance to make major investments outside their core competence, most insurers are forming partnerships with eager industry counterparts on the banking side. The challenge for banks is to make health insurers offering HDHPs see the value of what banks can bring to the overall consumer-directed health experience through their ability to manage accounts.
"It is about partnership," says David Josephs, VP and head of consumer-directed healthcare for New York-based JPMorgan Chase ($1.2 trillion in assets). "This is about health plans bringing their core competencies and JPMorgan Chase bringing what it does well together, in partnership, to provide the best solution to the marketplace."
JPMorgan Chase's (JPMC) vision is of an integrated offering in which health plan and banking partners' systems are closely conjoined, and that offers consumers flexibility for disposing of the funds associated with their accounts. The bank's strategy is to seek out health insurer and benefit provider partners willing to make the commitment that such partnerships imply. So far, JPMC has found several such partners, including Cigna (Philadelphia; $44.9 billion in assets), Humana (Lexington, Ky.; $9.6 billion in 2005 operating revenues), Aetna (Hartford; $22.5 billion in total 2005 revenues) and Wellpoint (Indianapolis).
Next-Wave Convergence
The significance of such partnerships is hard to overestimate. The appearance of HSAs has triggered nothing less than the next wave of financial services convergence, in the view of Alenka Grealish, a Portland, Ore.-based analyst for Celent. During the first wave, caused by the passage of the Gramm-Leach-Bliley Act of 1999 -- which allowed banks, insurers and securities companies to affiliate -- some banks and insurers expanded their product lines. But as Grealish notes in her report, "Health Savings Accounts: How Will the Stars Align?" there was not a great shakeout of consumers' funds.
This time, however, things are different. "The HSA wave is likely to hit health insurers hard, reducing the overall health insurance premium market by as much as 5 percent by 2010 and 10 percent by 2015, converting premium revenues into net interest, account management and fee income," she writes. "All banks stand to gain if they effectively enter the market."
Success will depend on banks' ability to partner with health insurers, since the latter control the relationship with employer benefits administrators, who currently represent the most-important customer-acquisition pipeline. The ability to deliver those customers gives many insurers leverage in forming partnerships as HSA demand increases.
And it will increase, according to Aamer Baig, a partner in DiamondCluster International's (Chicago) financial services practice and lead author of the consultancy's report, "Seizing the HSA Opportunity." Baig notes that "HSA custodians ... are currently opening over 50,000 HSA accounts each month." By 2010, there will be 15 million to 25 million HSAs holding $75 billion in assets, DiamondCluster projects.
The stakes have driven a musical chairs-like rush on the part of insurers and banks wary of being left behind without a partner. Seeking competent partners to assemble an HSA value chain is a good idea, according to Baig, but he says most partnerships have been struck with an emphasis on acquiring and servicing member customers through the employer health plan channel. "Very little thought has been placed on providing a good experience to the consumer right from enrollment, through point of sale, through investing of the consumers' funds," Baig comments.
In many cases, banks and insurers have formed what Baig describes as "loose partnerships" in which the consumer's engagement with each party is essentially separate. For example, customers may enroll in an HDHP and then be directed via written correspondence to open an account at a bank location or Web site. The detached nature of the HDHP-HSA linkage results in an unsatisfactory point-of-sale experience for the consumer and a costly manual process for bank and insurance partners, Baig offers.
More-customer-friendly and, ultimately, more-successful approaches will leverage technology toward three objectives, according to Baig. No. 1, systems should provide a seamless experience so that customers can navigate easily between health plans and HSAs. No. 2, platforms must integrate multiple partners on the back end, including health insurers, enrollment providers, tool providers and payment processors. And No. 3, in order to be prepared to acquire customers from either the employer channel or through more-direct means, systems should enable companies to offer a product that has both institutional characteristics -- that is, it needs to be associated with an employer, as in the case of a 401(k) -- and also retail characteristics (meaning portability for the customer) while meeting compliance requirements.
Customer Ownership
Beyond financial technology-related challenges, partners also face the issue of providing consumers with information on procedures, providers and costs. "Whoever is planning to own the customer or manage the customer experience -- banks and insurers are tiptoeing around the issue because both want to do it -- they need to be able to provide the customer with the right information ... when the customer actually has a need," Baig says. "Neither banks nor insurers have good tools to help the customers make the decisions."
Given the need to act within a narrowing window of opportunity, banks and insurers may be well-served by relying on niche vendors such as WebMD (New York) or Subimo (River Forest, Ill.) to provide the necessary tools, Baig suggests.
Vendors also are seeking to bridge gaps on the payment-processing side. "To make all of this work, banks and insurance companies need to have new linkages and capabilities," asserts John Reynolds, president, Metavante Healthcare Payment Solutions (Milwaukee). "As you get into this space, you enter a gray zone between what banks and insurers do."
For example, some banks have sought to respond to consumer demand simply by creating interest-bearing accounts and labeling them HSAs. That is inadequate, Reynolds says, because, "In order to maximize tax advantage, most employers are looking for a combined product," such as an HSA/flexible spending account (FSA) suite.
HDHPs reduce premium costs, and associated accounts encourage employees to set aside pre-tax dollars. "In essence, it's part of a payroll reduction strategy," Reynolds explains. "The more pre-tax dollars are flowing to these products, the lower the employer's FICA liability." The problem is that in the absence of integration between the accounts, "I, as a customer, can't go out and see -- simply, through a single portal -- simultaneously where I am relative to my FSA and my HSA balance," Reynolds adds.
Customers also need to see where they stand with respect to their deductibles and their out-of-pocket maximums so that they know at the point of sale if they have crossed over the line into their area of financial responsibility. "That's a piece of information that requires coordination for the insurance company to be able to push that to the bank and represent it back to the customer," Reynolds says.
In addition to speed, payment processing companies also provide economy of scale, particularly to smaller banks and insurers, according to Celent's Grealish.
While those vendors do work with many of the largest insurers and banks, Grealish suggests that the high degree of customization in major financial institutions' systems will require greater investment to launch attractive HSA offerings. "Your costs would probably start as high as $5 million, depending on how much functionality you have online and how much you offer in the way of value-added services," she says. "That would include things like call center reps conversant with HSAs, people who can provide relevant information to HR departments, whether you want to build an employee training course, etc. -- you get into big money."
JPMC's Josephs declines to talk about actual dollar figures, but acknowledges that it is impossible to pursue the strategy his company has chosen "without significant resources and investment." To enact its strategy, Josephs relates, JPMC has "set up an HSA-specific operations group, we have made significant investment in HSA-specific information technology built on core platforms, and we have invested heavily in integration -- along with our health plan and benefit provider clients -- in order to provide that kind of offering to the marketplace."
Prior to engaging JPMC as a partner in its HSA-related strategy, Cigna -- a client of the bank -- determined that the best offering for its employer health plan market was an integrated HSA solution. Cigna sought to provide its customers with a solution that offered a seamless experience for members accessing healthcare, performing transactions and navigating between the insurance and banking realms associated with HSAs, according to Jake Biscoglio, head of consumer product development and innovation, Cigna. "We then asked, 'Do we do this on our own, or do we partner with a financial services company?'" Biscoglio relates. "Research told us that consumers saw more value in having a financial services company hold their money ... and provide earnings opportunities on their money."
Cigna chose to engage JPMC as a partner based on the appeal of the banking brand to the insurer's customers, as well as a shared commitment to an integrated model, Biscoglio adds. The partnership's HSA went live Jan. 1, 2005.
"We made a very conscious decision in going to market that we needed to work with insurance companies like Cigna in order to make sure that the end customers' experience of accessing their healthcare benefit -- not simply accessing a financial account -- was as smooth and seamless as possible," says JPMC's Josephs. "Cigna has capabilities to provide healthcare benefits to employers and individuals that the bank has no interest in developing." JPMC contributes "our transaction processing, our experience with debit cards, our experience being a custodian and trustee of accounts, and our ability to provide and administer a range of investment options," Josephs adds.
The partnership's concept of integration is, Cigna's Biscoglio emphasizes, "to make it as easy as possible for individuals to utilize their account, interact with it and get their questions answered."
Delivering on that principle meant providing real-time access for customer service reps at Cigna to be able to look into JPMC systems for information such as account balances and latest transactions, Josephs explains. "We also created single sign-on, which required a decent amount of effort on the part of organizations that are in highly secured industries," he says. "We worked together to make sure that as people access their information at the health plan, they can jump to JPMorgan Chase pages in order to do that."
The companies also built the capability to provide updates to Cigna so that account balances could be viewed in juxtaposition to medical benefit information. Links also were built for claims forwarding, enabling Cigna to query individual HSA accounts to determine whether the balance was sufficient for a given charge. "To make that happen quickly and efficiently required the establishing of communications through the security layers of both organizations," Josephs says.
Accommodating Consumer Choice
Research conducted by Pittsburgh-based Highmark ($9.1 billion in annual revenue) in 2004 showed that while customers saw HSAs as something distinct from their health plan, they nevertheless wanted them closely connected. To accommodate that preference, the insurer sought a partner that could support broad account management functionality and seamless Web-site navigation between its systems and Highmark's systems.
Highmark chose Wilmington, Del.-based PFPC ($1.9 trillion in assets serviced), a unit of The PNC Financial Services Group. "We knew out of the gate that we wanted to do more than just a simple checking account," says Kim Bellard, VP, e-marketing and customer relationship management, Highmark. "In addition to short-term financing, we wanted to make available longer-range financing where customers can accumulate some money on a nice, tax-preferred basis longer term."
Bellard says that PFPC, which provides Highmark with both custodial and processing services for its HSA, had the administrative capabilities needed to meet the insurer's customers' demands. "PFPC's processing platform is very good at connecting up accounts with a variety of different investment options and administering them," he comments. Highmark's HSA went live Jan. 1, 2005.
In addition to acting as a "gateway to a supermarket of mutual funds," PFPC accommodates its insurer partners' demands by providing its services on a white label basis, according to James Gandolfo, head of HSA development, PFPC. "We will label the presentation of our Internet delivery for enrollment purposes and management of the investment account as if it is the insurer's site," Gandolfo says. "The direct connection between the insurance company and the insured is very important. And so what they are delivering to that insured is both health insurance and the management of the HSA, subcontracted to PFPC."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio