Health Savings Account Blog                  

United Healthcare (OptumHealth Bank), the Blue Cross and Blue Shield Association (Blue Healthcare Bank) and WellPoint, Inc. (ARCUS Financial Bank) have subsidiaries to house Health Savings Accounts, Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs). As of Feb. 29, OptumHealth held more than $560 million in HSA deposits.

In 2007, according to Knight, health plans collectively took in about $700 billion in premium revenue for their commercial insurance products. In theory, switching consumers to high-deductible plans should reduce that premium revenue by about $300 billion, he says. Some of that savings could be redirected to consumer-owned Health Savings Accounts. However, premiums charged for some HSA-qualified plans are far too high given the large deductibles enrollees are asked to meet before coverage begins, he contends.

"The insurance product ought to be very inexpensive compared to low-deductible (copayment-based) policies," Knight asserts. "But the incumbent insurers aren't interested in reducing their premium revenue."

However, United Healthcare, the nation's largest seller of HSA-qualified plans, says its plans (sold through its Golden Rule subsidiary) typically cost 45% to 55% less than its more traditional coverage options, according to spokesperson Ian Stanton. As of Jan. 1, more than 1.3 million lives were covered by one of United's HSA-based plans.

Banks May Offer Plans for Less

According to Knight, premiums for an insurance policy that carries a $6,000 annual deductible should be half the price of a policy that has a $500 deductible because the enrollee assumes far more financial risk. He cites the Rand Health Insurance Experiment, which determined that moving to high-deductible coverage should reduce insured payouts by at least 43%. Knight adds that average per-capita spending for people under age 65 is probably between $2,700 and $3,000 per year. But premiums often don't reflect the savings that health plans reap. And that means there is less money for consumers to invest in Health Savings Accounts.

"Banks are waiting for the bouquet, but when it arrives, it's just a couple of flowers," he quips.

Low-cost coverage would free up more money for customers to place into their Health Savings Accounts, Knight suggests. An increase in core deposits, he says, "is platinum to banks right now." Renewable deposits, Knight adds, could make the cost of running a health insurance business akin to a marketing expense.

Some banks already own property and casualty insurance companies. And banks that sell insurance tend to be more profitable than those that don't, according to data released this month by Mamaroneck, N.Y.-based Bank Insurance Market Research Group. According to the report, banks that had some insurance activity in 2007 reported 44% higher (median) net income than banks that didn't have such side businesses.

Large banks, which tend to be more profitable anyway, are more likely to operate an insurance businesses than are smaller firms, and the higher net income was apparent in all asset-size groups, according to the study. The smallest banks (less than $250 million in assets) that had some insurance activity had 40% higher median net income than that of similar-sized firms that didn't offer insurance.

1999 Law Allows Competition

Under the Gramm-Leach-Bliley Act of 1999 (GLBA), financial service companies, large banks, or syndicates of midsized banks would be allowed to sell HSA-qualified insurance plans. The law repealed Glass-Steagall, a series of laws enacted beginning in 1933 that prohibited banks from offering investment and insurance services. GLBA allowed financial-service firms to offer investment, commercial banking and insurance services under one corporate roof.

So far, the insurance companies are the only ones taking advantage of the structure allowed under GLBA, primarily "as a defensive measure against the loss of premium revenue into HSA deposits," says Knight. "Hopefully, well-capitalized banks will soon see the wisdom and market advantage of this structure."

But launching an insurance company could be tricky. GLBA confirms that banks can sell certain insurance products, and underwrite certain other insurance products (e.g., credit life insurance). Broader underwriting authority is available if the bank contracts with an insurance affiliate of its holding company. Such an affiliate would not be limited in the range of insurance products it could underwrite, according to Joseph Yesutis, a banking and financial services attorney with Alston & Bird in Washington, D.C. Once the holding company has made the determination to add an insurance-underwriting subsidiary, the question becomes build or buy, he explains.

Regulations May Be Obstacle to Banks

The biggest obstacle to creating an insurance affiliate would be the various state Department of Insurance (DOI) requirements such as rate approvals and reserve and registration requirements, concurs John Hickman, partner and head of the Health Benefits Practice at Alston & Bird. "This DOI infrastructure can take years to develop," he says. "Thus, there likely would be a significant advantage for the holding company to acquire an insurer as opposed to starting from scratch."

And some banks would rather partner with health plans than compete with them. "We see more of an opportunity to partner" with health plans, says Jill Kelly, senior vice president at The Bancorp Bank. "That allows each industry to do what they are good at." Kelly adds that potential synergies might exist between insurers and banks to improve claims-processing efficiencies.

Could Banks Offer Lower Premiums?

A group of midsized banks, according to Knight, could contribute about $15 million to purchase a dormant insurance company that can sell HSA-qualified health plans. "Of course they would have to abide by the same rules that govern other health insurers, but with the right structure, there's nothing that would prohibit a bank from doing this," he says.

The premiums for HSA-based health coverage seem to vary by region. In some states, such as California and Texas, HDHPs are a bargain compared to more traditional insurance products. "But there are other states where agents say they aren't very competitive," says Tim Morales, president of HSA Trustee Services in Lake Geneva, Wis.

Knight says the idea of bank-owned insurance companies could be permanently shelved if the Democrats win the White House and retain both houses of Congress in 2009. The HSA substantiation bill, which died in Congress last month, is likely to surface again in the next Congress if there is a better chance of passing it, according to industry observers. And a law that requires substantiation of HSA expenses would "kill the market penetration" of Health Savings Accounts, according to Knight. Banks, he adds, tend to be conservative and probably won't invest in such a strategy if the next presidential administration doesn't support the growth of Health Savings Accounts.