HSA Processing: Healthy Ambitions
ISSUE 15.4, Dec/Jan 06
Alenka Grealish,
Celent
More and more financial institutions and their systems suppliers are seeking a piece of the HSA action.
US banks are deciphering the health savings account (HSA) opportunity; banking system vendors are doing the same. Fiserv, Metavante, and other players are rushing to market with HSA services in these early days of healthcare banking in the US.
HSAs, authorised in December 2003 by the US government’s Medicare Drug Prescription Improvement and Modernization Act, receive contributions made by individuals from their paychecks, funds that later are withdrawn tax-free to cover medical expenses not covered under health insurance plans. As healthcare costs for US employers rise, HSAs are expected to flourish as consumers take a greater role in managing healthcare spending.
Tower Group expects 1.88 million HSAs to be established by the end of 2005, growing to 6.2 million by 2010, when total HSA assets will be between $10 billion and $26 billion. Another research firm, Celent, is even more optimistic, predicting 15 million accounts and $62 billion in assets by 2010, and almost 35 million accounts by 2015. The number of HSAs is expected to explode from the start of 2006, when many large corporations will introduce employee health insurance plans with HSAs.
US banks are processing HSAs to strengthen corporate banking relationships and to realize fees that may total $1 billion by 2012, according to Forrester Research. Celent says five per cent of US health insurance premium revenues will be replaced by the net interest, account management, and fee income derived from HSAs by 2010, some of which can go to US banks rather than insurance companies.
The accounts are accessed by debit cards when payments are made at the hospital or doctor’s office. These payments must follow the rules of employers’ health insurance plans, adding a rules processing and data communication component. Funds in the accounts must be managed to ensure growth. Finally, specific government tax reporting is required. US banks brim with expertise in all these areas.
Alenka Grealish, manager of Celent’s banking group, observes that, at the core, HSA processing will not be hard to support. A bank can provide account processing with its ‘current chequing or demand deposit account platform, or funds platform’. For banks that outsource, HSA processing can be ‘plug-and-play if they have a service bureau that has upgraded to meet the tax reporting requirements’. On the vendor side, Grealish finds that ‘all the big players have enhanced their platforms’.
For banks seriously involved in HSAs, tech spending will be focused on customer-facing applications, particularly the dedicated website, according to Grealish. These banks are raising web-based customer service to ‘a higher level’. The website can include value-added features, such as quality metrics for healthcare providers.
US banking system vendors are jumping on this opportunity. HSA processing is a key component of Fiserv’s healthcare banking initiative. Fiserv is combining its market strength in core processing with the healthcare knowledge of its Fiserv Health unit that provides health insurance plan administration services to self-insured corporations and governments. Fiserv has assembled all the pieces for HSA success: account processing software and service bureau; connections to healthcare providers and insurers; and payments processing. All of Fiserv’s retail banking and credit union platforms can now support HSAs. For instance, all seven of Fiserv’s credit union system vendors are collaborating to develop HSA processing functionality to be rolled out at the end of 2005. Initial functionality will include opening and maintaining HSAs, with debit card access to be added later. Patience is required, however, as Fiserv management foresees slow growth as the US healthcare system gradually evolves.
According to David Carden, vice president at Fiserv’s Information Technology, Inc. (ITI) unit, many users of its Premier retail banking system are already processing HSAs, leveraging the traditional account processing functionality of the system. However, ITI is rolling out Premier Demand HSA, ‘a new product [that] will make it easier’ for banks to offer HSAs, according to Carden. Premier Demand HSA supports debit cards, fund sweeps into investment accounts from third party providers, government-required tax reporting, customer statements, and browser-based customer service. The solution is targeted at current Premier customers, typically banks ranging from medium-sized community banks to large banks with approximately $3 billion in assets. According to Carden, Premier Demand HSA has been in beta testing with 15 clients, with the official product release coming in late October.
Karen Veling of Fiserv Vision explains that the only change made to the Fiserv Vision platform, popular in the savings bank/thrift industry, is the addition of the appropriate regulatory reporting for HSAs. Fiserv Vision has a prior relationship with AIM Investments, so that funds in HSAs can be swept into its investment accounts. HSAs are established as chequing accounts, but Fiserv Vision will later be able to set them up as savings accounts or time deposits. Veling notes that HSAs are ‘another opportunity for savings banks to...reach out to business customers’. As a case in point, Fiserv Vision is beginning to process HSAs for First Federal Savings Bank of Wisconsin, a savings bank with $89 million in assets, with the bank driven by a desire to strengthen relationships with commercial customers.
Fiserv competitor, Metavante, offers a complete HSA solution leveraging the functionality of its core Deposit and Cardbase systems. Metavante provides automated transaction tracking and coding, compliant reporting, an internet interface, and debit card processing. For the front-end, Metavante is using its May acquisition of vendor, Med-i-Bank. Med-i-Bank, renamed MBI Benefits, provides payment services for debit cards linked to HSAs. MBI’s main product is the MBI Benefits Card. MBI also has the Mbitime system, a transaction authorisation and account management platform that processes transactions based on the rules of the relevant healthcare plans. Mbitime can authorise transactions originating at hospitals or doctors’ offices over the Visa and MasterCard networks, track account balances, and settle all payments. MBI also handles enrollment processing, communication with banks holding HSAs, and debit card creation.
Open Solutions Inc.’s (OSI) acquisition of Bisys’ Information Services Group (IBS Journal, October 2005), bought the vendor an HSA processing business, in the form of Bisys Healthcare Banking Solutions. This division leverages Bisys’ TotalPlus mainframe-based service bureau platform to offer HSA processing. The services include regulatory reporting and investment options.
Celent’s Grealish notes that ‘banks realize they have to offer investment accounts’ since funds in HSAs will require a greater return than the minimal interest being paid on savings accounts in order to match rapidly rising healthcare costs. If a bank ‘treats [the HSA] like an individual retirement account or mutual fund -- this is where things get complicated’. Banks will need investment processing capability so, not surprisingly, providers of outsourced mutual fund processing are introducing HSA services. For example, both PFPC and DST Systems offer outsourced HSA processing using the Surpas and TA2000 mutual fund shareholder record keeping platforms, respectively.
Jim Gandolfo, senior director and vice president of business development for PFPC, explains that, while PFPC both competes and partners with banking vendors such as Fiserv, more often it is a partner, providing the essential investment account component. In addition to this processing, PFPC has ‘a website that allows a partner to embed us into the system’. This ‘white label’ website is branded by the insurance company or bank, yet users have ‘all access they need to manage funds’.
It is this kind of advanced investment management functionality that may be difficult for banking vendors to provide. Conversely, PFPC can provide the debit card capability that banking vendors see as a core strength. Banking vendors are seeing competition from the payments side, as well. TSYS, a major US processor of credit card accounts, is pursuing opportunities with its TSYS Prepaid division.
All technology providers must monitor the developments of the HSA Workgroup, which is developing best practices. Dave Harris, leader of the HSA Workgroup, indicates the group focuses on the involvement of banks and bank technology firms with HSAs, the impact of HSAs on payments, and the ‘systemic and operational barriers preventing healthcare’s transactions environment from resembling other industries’. The group envisions a ‘banking-style network’ for payment messages around healthcare transactions, including authorisation messages for payments and for specific healthcare services, and remittance statements. It is reviewing specific technologies such as open source platforms (including the Medical Banking Project’s Combat XML messaging between all stakeholders, including banks and bank processors) and kiosks with payments and account-related functionality that plug into the envisioned network.
It is here that an evolved payments opportunity presents itself, according to Harris. The debit card can change healthcare in general if Visa and MasterCard enhance the card networks to transmit the special information needed for HSAs and other types of health insurance coverage. Details of the specific medical service, claims information, and explanations of payments could flow through the networks. This is a new world for many US banks, and the HSA Workgroup provides essential guidance.
As Celent notes in a recent report on HSAs, ‘if a bank is pursuing HSAs to boost deposits, they will likely treat them like checking accounts and simply run them on their demand deposit core processing system and add required elements (e.g., tax reporting, custodial agreements, third party administrator agreements)’. On the opposite end of the functionality spectrum, ‘if a bank is pursuing HSAs with broad ambitions...there are many more moving parts and technological issues’. Vendors seem to have the low end covered, but are rushing with acquisitions and mergers to master all the ‘moving parts’ of the HSA.
