HSAs: Challenges. Solutions. Profits?

HSAs: Challenges. Solutions. Profits?

Land, Karen

There is a health care crisis in this country. Millions of Americans have no health insurance at all, and increasing numbers of employers are hiking deductibles, dramatically reducing coverage or eliminating company-paid health insurance altogether. In a brief five-year span, premiums for family coverage have risen 59% while wages have grown only 12%.

Health Savings Accounts (HSAs) are filling the gap. HSAs provide consumers with the opportunity to save for medical expenses at a considerable tax savings and enable employers to provide employees with health care coverage on a more cost-effective basis.

Consumer driven healthcare is the wave of the future, and your bank is a key player. There are challenges. To cash in on the HSA revenue stream, you must become knowledgeable about HSA rules and regulations. You must identify your target market. Finally – and this may well qualify as number one – you must let consumers and businesses know that you want their HSA accounts.

The Ground Rules

To be eligible for an HSA, individuals must participate in a high-deductible health plan (HDHP) of at least $ 1,000 per year for single coverage and $2,000 for family coverage; can have no other “first-dollar” medical coverage; and cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return. There is no “use it or lose it” rule: participants may accumulate funds and self-direct investments in a tax exempt trust or custodial account. These funds can be put into an interest bearing savings account and can even be invested in mutual funds after a minimum amount is accumulated. Funds can be used to pay medical expenses for the account holder, his or her spouse and dependent children even if they are not covered by the account holder’s HDHP.

Withdrawals for medical expenses are tax-free. And although there is a 10% tax penalty if HSA funds are used for purposes other than to pay “qualified medical expenses,” the penalty no longer applies when a person turns 65 or becomes disabled, making HSAs a valuable retirement asset.

The HSA is portable: if an employee changes jobs, the account stays with the employee. Also, contributions are not limited to the owner of the HSA: family members, employers and any other third party may make contributions to an HSA on behalf of an eligible individual.

Your Target Market

Let’s face it. Each of your bank’s customers is a potential HSA account holder. If they don’t need an HSA account now, they may need one in the future. When they do, you want them to think of your bank first. Send materials promoting HSAs to your entire customer base.

Education: A Critical Tool

Although any employer can offer HSAs, many employers – and small business owners in particular – may not be familiar with the benefits a high-deductible plan can provide. Developing an “HSA Education Program” at your bank can pay big dividends. For instance, you could schedule educational sessions by sponsoring breakfast and lunch seminars for your business customers and their employees. After-hours meetings can also be beneficial. The important thing is getting the opportunity to explain the benefits that HSAs can provide and letting these businesses and consumers know that you are aggressively soliciting HSA accounts.

Local insurance agents are also key players in consumer-driven healthcare. Letting these agents know that your bank is ready and able to handle the savings side of an HSA is critical. This insures that when an insurance agent is asked “Which banks in our area offer HSAs?” your bank’s name will already be on the list.

Funding the HSA

It is important for both employers and employees to consider how and when contributions are made. Since withdrawals for medical expenses cannot exceed the contributions made, employers might consider making larger contributions early in the year. If an employee is making the contribution, payroll deductions would be the least painful. Also, since there is no limit on when a medical expense tax deduction can be taken in relation to when the medical expense occurred, and most doctors and hospitals will accept periodic payments when larger expenses are incurred, an employee funding an HSA with payroll deductions can probably wait until the HSA balance increases to pay the expense. In addition to annual contributions, consumers over the age of 55 are allowed to make “catch up” contributions: $600 this year, increasing by $100 increments each year until it tops out in 2009 at $1,000.

Fee Income

HSAs provide a number of income producing opportunities. Many financial organizations charge a one-time “set up” fee – as much as $50; others are charging annual “maintenance” fees, and some banks are charging both. Income can also be generated by charging a transaction fee each time an HSA debit card is used. Some banks are also charging a check processing fee if the customer uses HSA checks to pay medical expenses.

The Role of Technology

Don’t overlook technology’s role in making HSAs more efficient for your customers and more profitable for your bank. Technology can monitor accounts to guard against over contributing; provide tax reports to the IRS and account holders at year end; issue stop pay alerts; provide access to HSAs by debit cards and checks; allow consumers to retrieve HSA account information through your voice response system, and more.

Blue Cross/Blue Shield of Illinois reports that half of the issued individual policies in 2005 have been HDHP with HSA compatibility, so now is the time to kick your HSA marketing plan into high gear. Visit the Treasury’s HSA web site: www.treas.gov/offices/public-affairs/hsa for more information.

by Karen Land

Application Product Manager

Computer Services, Inc.

Karen Land, CSI application product manager – TDA, joined CSI in 1991 as account manager for banks in Indiana and Illinois. She has also served as product specialist for CDs and IRAs. She was named to her current position in 2002. Prior to joining CSI, Land spent 10 years with the Davenport Bank, Iowa’s largest privately held bank. While there she held positions in customer service and new accounts. She also started a discount brokerage department for the bank and was a customer service trainer.

Copyright Kentucky Bankers Association Mar 2006

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