HSAs are a Multi-billion Dollar Business

Reprinted from INSIDE CONSUMER-DIRECTED CARE, a biweekly newsletter with timely news and insightful analysis of benefit design, contracts, market strategies and financial results.
By Steve Davis, Managing Editor

Financial firms now hold at least $3.2 billion in health savings accounts (HSAs) — up from about $2 billion just a year ago and from $2.3 billion last July. The average HSA balance is $1,341, up just $14 from last July. The small increase in the average balance, administrators say, is likely due to a large number of accounts established in late 2007 or early 2008 with low or no balances. Case in point: The average HSA balance increased from $1,181 in January 2006 to $1,260 by July 2006, but then decreased to $1,178 in January 2007. Six months later, the average balance rebounded to $1,327.

Since Jan. 1, 2004 — the day the Medicare reform law gave birth to the accounts — more than 2.2 million HSAs have been established. Financial data from the nation's credit unions will be reported in a future issue of ICDC. Between 6.5 million and 7 million lives are covered by a health plan that is compatible with an HSA, according to estimates.

At least eight firms say they hold more than $100 million in HSA assets. The nation's largest HSA administrator is OptumHealth Bank (formerly Exante Bank), a subsidiary of UnitedHealth Group. As of Feb. 29, OptumHealth says it had 385,000 HSAs (up 37% from a year earlier), and held more than $560 million in assets, up from $350 million a year ago. The nation's second largest administrator, HSA Bank, says it held $540 million in HSA assets as of Feb. 29 - up 42% from $380 million a year earlier.

HSA Bank says its client mix changed a lot since 2004, when individuals made up 44% of its HSA business. However, individuals now account for just 14% of HSA Bank's business. The majority, 86%, comes from employers. As of December 2007, about 58% of account holders were "spenders" (i.e., people who spend at least 50% of funds deposited), while 20% were "savers" who didn't withdraw any money from their accounts.

HSA-qualified plans that match the annual out-of-pocket maximum with the annual deductible have stimulated HSA growth because they are easier for employees to understand, says Sterling HSA CEO Cora Tellez. She cites WellPoint, Inc. and Kaiser Permanente as companies that offer such options. (Editor's note: This type of health plan has a deductible but 100% coinsurance, so the out-of-pocket limit equals the plan deductible)