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Taking it to the bank: A new strategy for health plans

While pledging to be "trusted advisers" for members and employers, health plans are positioning themselves to be financial players, too.

By — Posted Dec. 22, 2008

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After dropping non-health-insurance businesses, such as life insurance and reinsurance, years ago, the biggest health plans are rediversifying into the money management and banking businesses.

Employer-based health insurance does not appear to be at risk of losing its prime position with health plans, but plans are seeking the health savings account market, and many have started banks to capture it.

Though consumer-directed care has taken off more slowly than projected, the growth of high-deductible health plans paired with HSAs has quickened since 2005. There were about $9.4 billion in HSAs at the end of 2007, according to industry estimates.

"The health insurers would like to not lose that half of the health care wallet," said Charles Boorady, managing director and senior health care analyst for Citigroup, "and one way they're doing that is trying to make banks of their own."

WellPoint, UnitedHealth Group and the BlueCross BlueShield Assn. have FDIC-approved banks that hold HSA balances. But the banking-in-health-care movement is unlikely to end there, experts say.

In a report released in August 2007, Chicago-based Diamond Management & Technology Consultants estimated that the revenue from what its consultants refer to as the "health/wealth" market -- managing such interests as health debit cards -- could reach $40 billion over the next five years.

The authors estimated that $4.3 billion of that $40 billion could be made by companies that help people manage and invest HSAs, particularly as contribution limits rise. The key to profitability, the authors said, is to make money from "asset management," beyond maintenance and transaction fees.

The profits from banking may not be much easier to earn than those from the traditional insurance business, however.

The HSA margin is in the ballpark of 1.5%, depending on the fees a bank charges and the interest rate it pays, said Dennis Triplett, president of Healthcare Services for UMB Bank, based in Kansas City, Kan. That bank began offering HSAs in 2004 and now holds more than 100,000. Triplett said health plans have advantages over traditional banks: scale and customer service infrastructure.

Health plans "have the inherent advantage of having a dedicated customer service operation that can answer today all the questions like 'What is this procedure? What is this claim? And, by the way, how much money do I have?' " he said.

There's money to be made

The profits from health banking may never outweigh those from traditional health insurance and likely never will come close to the more than $40 billion brought in by UnitedHealth Group's UnitedHealthcare division. But the growth in demand for those services has been steep and might attract health plans looking to boost profits, experts say.

Trade group America's Health Insurance Plans estimated that more than 6 million people in the United States were enrolled in high-deductible plans in January 2008.

Around 10% of people who have those types of plans and are eligible to open HSAs never do, and that number has remained consistent over the past few years, said Don Mazzella, publisher for Information Strategies Inc. The firm, based in Ridgefield, N.J., polls banks on HSAs, issues periodic reports on market growth and runs a Web site promoting HSAs (link).

ISI does not track enrollment in high-deductible plans but estimated that there were 5.7 million HSAs as of Jan. 31, a number that could double by Jan. 31, 2009, Mazzella said.

The other draw of the HSA business -- true for health-plan-owned banks as well as traditional ones -- is the opportunity to cross-sell other products, said Roy Ramthun, a former Bush administration official who also worked for Humana and now runs HSA Consulting, a Washington, D.C.-based firm.

Some observers say that by focusing on transactions and investments, insurers are conducting business as usual and merely dropping the pretense of doing anything about members' health. Plans say they are not redefining themselves as money managers but have established banks to handle HSAs as a customer service.

"Health plans are not moving away from providing the important health care services and programs that patients rely on," said Robert Zirkelbach, an AHIP spokesman.

Todd Siesky, a spokesman for WellPoint, insisted that despite redefining its business as "financial services" in its FDIC application to charter a bank, the Indianapolis-based company was not changing its core mission.

"WellPoint's decision to open a bank as part of its overall business strategy does not mean that we are repositioning ourselves as money managers. We decided to open Arcus Bank as a way of increasing the number of financing options for our members and clients," he said in an e-mail.

UnitedHealth Group founded Exante Bank, now called OptumHealth Bank, in 2003 and began handling HSAs in 2004. Bank President Kelvin Anderson wrote in an e-mail that "forming OptumHealth Bank was not based on creating a transaction-based revenue stream for UnitedHealth Group." Rather, "through OptumHealth Bank, we are able to seamlessly support the medical plan with associated financial services for members, making it much easier to manage their health-related expenses and presenting new savings opportunities."

Following broader trends

But industry analysts say plans are motivated to create banks and hold HSAs to keep traditional banks from making money from those deposits.

The source of profit and growth is changing in response to broader trends, said Paul Keckley, PhD, executive director of the Deloitte Center for Health Solutions, a research center that is part of Deloitte's consulting business.

Keckley said two primary forces are at work in the health care-banking convergence: the expansion of "health care" to include out-of-pocket purchases such as for acupuncture and nutritional supplements, and the growing financial exposure facing even people who have insurance.

"We're now more at risk for all of these financial decisions," Keckley said, "so it makes sense for health plans to make health care transactions simpler for members."

Some in the industry, specifically the Medical Banking Project, advocate that health plans use existing bank networks to handle claims and reimbursements. "What we're saying is when you link these systems together, you get a more seamless process," said John Casillas, founding director of the medical banking coalition.

Casillas said plans have spent -- and wasted -- millions of dollars trying to set up proprietary networks that include real-time claims adjudication and payment. Using the banking system would allow health plans instantly to improve accuracy, privacy, speed and convenience, he said.

Latching onto the banking network also could reduce the error rates, Casillas said. "In banking, one mistake per million is unacceptable. In health care it's in the thousands [per million]."

Keckley said plans already are working to standardize claims payments. "Their differentiation from each other is going to be somewhere else."

Health plans' move into banking could heighten the focus on transactions and investment strategy over care management, prevention or wellness. The largest health plans already are so focused on serving stockholders that they have abandoned their original mission of managing care, said Joe Paduda, principal for consulting firm Health Strategy Associates, based in Madison, Conn.

"They are more health transaction processors than managed health care plans."

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ADDITIONAL INFORMATION

Small accounts

A survey by the trade group America's Health Insurance Plans shows rapid growth in enrollment in high-deductible health plans that can be paired with health savings accounts. So far, those accounts are modest. The average balance (based on a sample size of some 800,000 accounts) was $1,382.

Balance
$013%
Less than $1,00050%
$1,001-$2,50020%
$2,501 to $5,00010%
$5,001 to $10,0005%
More than $10,0002%
100%

Source: 2008 AHIP HSA/HDHP Census

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Health plans banking on HSA growth

By 2008, there were an estimated 6.1 million HSA accounts, with more than $6 billion in deposits. The business is one part of health insurers' increasing emphasis on handling transactions and managing money.

QuarterHSA deposits
1Q 05$300 million
2Q 05$600 million
3Q 05$800 million
4Q 05$1,100 million
1Q 06$1,300 million
2Q 06$1,700 million
3Q 06$2,600 million
4Q 06$3,600 million
1Q 07$4,400 million
2Q 07$5,100 million
3Q 07$5,200 million
4Q 07$5,600 million
1Q 08$5,700 million
2Q 08$6,000 million

Source: Information Strategies Inc.

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Financial growth area

An estimated 2,100 banks offer HSAs, including these banks, owned and operated by health plans:

UnitedHealth GroupWellPointBlueCross BlueShield Assn.
OptumHealth BankArcus Financial BankBlue Healthcare Bank
CharteredJuly 21, 2003Sept. 9, 2008March, 12, 2007
Assets$824.9 million$36.1 million$61.7 million
Deposits$617.5 millionUndisclosed$17.9 million

Note: Assets and deposit amounts reflect numbers as of Sept. 30.

Source: FDIC filings, Information Strategies Inc.

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