Entering Unfamiliar Territory

If universal coverage mandates that employers provide health insurance or that people secure it themselves, it is highly likely that the majority will choose the lowest cost option, or “low premium” (aka HDHP or high deductible health plan). These plans enable consumers to open an associated financial account – HSAs.  In addition to helping consumers plan their spending, savings and investment for current and future health needs, HSAs provide a triple tax free opportunity to save for retiree health.


As consumers require new financial accounts and tools to effectively control funds related to healthcare, they are entering into unfamiliar territory.  Financial institutions across the country will depend on new platforms and systems to support the products, services and tools developed for consumers. Universal coverage could increase HSA projections beyond the current 2012 estimates of more than 20 million new accounts with $200 billion in assets.  These accounts, and the growth of consumer medical out-of-pocket, are driving financial institutions to evolve.

The impact on some of the key health stakeholders of increased low premium plans and HSAs, include:

· Insurance Companies: A high percentage of approximately 47 million uninsured could load onto the commercial health insurance infrastructure.  If the US is currently spending 30 percent of its revenue on administration driven by inefficiencies in current systems, how will this system bear the increased volume?

· Health Providers: Fewer uninsured could reduce write-offs for patient payment by providers, as those currently using emergency rooms (ER) for non urgent care begin to transfer use to more traditional based care..  Write-offs based on increased patient out of pocket could increase (both traditional and low premium plans) thus driving need for real-time access to data including eligibility, co-pay, deductible status, pricing and available financial account balances at the point of care.

· Banks
: According to Forrester, low premium plans could cover up to 34% of the commercially insured by 2012.  Add the 20-40 million Americans entering the healthcare system from the uninsured ranks and the number of low premium plans (and their financial accounts – HSAs) could climb.  Banks and investment managers need systems/processes/partners different from their core business to accommodate this new opportunity.

· Card Networks: Current 2012 estimates for healthcare spending are $4T, according to the National Coalition on Healthcare.  If traditional payment networks want this new business, they will need to work to assure systems (current or new) can accommodate industry changes and growth. Additionally, count on new players entering the market to take this business and put traditional payment volume at risk as well.

· Investment Banks: Some estimate that more than $200 billion will sit in new consumer health deposits by 2012 – for current and retirement health needs.  Retirement planners’ estimate that we’ll need “30% of our required retirement savings to >$200k” in retirement to address health needs.  While investment managers are adept at handling funds until a retirement date, HSA funds may need to be accessed regularly or early in the event of medical need.  Therefore, investment banks will need transactional capabilities beyond traditional investment platforms and will pursue system build, partnerships or acquisitions to secure this.   

· Consumers:  More than 70% of employers are offering CDH with up to 80% of HSA employers contributing money into these accounts.  In order to manage these new ‘defined contribution’ funds and utilize new products, consumers will need tools to understand and compare quality and costs for healthcare services and  plan what they need to save, spend and invest on healthcare, now and into retirement.  There are currently insufficient tools to aid consumers in this effort but new tools are releasing quickly to greatly aid in this effort.

I know this poses more questions than answers.  Research on this topic is ongoing: What is this convergence and what does it mean?  Who is in the market and what is the next wave? What should buyers of the services seek in leading practices?  What is unique about M&A in this cross-industry market?

In this market growing from the convergence of the countries largest industries – banking, health and insurance – there’s only one thing we know for sure.  It will continue to change and grow, quickly.

<blockquote><p><em>Kristen Trusko serves as Practice Lead with BearingPoint’s Banking Insurance Group </em></p></blockquote>

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13 replies »

  1. “(not single payor, but broader incentive/mandates to secure health coverage)”
    Gee, I wonder why?
    “Until there is some other alternative for health coverage that is affordable to employers as they compete in an increasingly more globalized market…”
    The alternative is out there, it is single-pay for many or a combination of tight government controls and single-pay for others. Either way when a country spends double its competitors on healthcare it CAN’T COMPETE. The insurance industry isn’t going to get us there.

  2. Great discussion on the topic over the last few days. As with so many discussions in this area, the general consensus seems to be that the information and tools currently available to individuals arm themselves as true consumers – are not yet available to the public. Additionally, as this is a huge shift in the way Americans have viewed and purchased something as personal as health care – there is fear and confusion in the ranks of both individuals and employers.
    Whether any type of universal coverage (not single payor, but broader incentive/mandates to secure health coverage) comes about in our lifetimes or not – the trend of increased consumer out of pocket related to health appears to be growing unchallenged. Until there is some other alternative for health coverage that is affordable to employers as they compete in an increasingly more globalized market – we will continue to see the US grapple with how to provide health coverage to a broader base of Americans.
    To hear more of my thoughts around this topic, please check out the podcast I recently recorded. The link is below if you’re interested.

  3. tcoyote-
    HSA’s are great when you know how to use it. Most people don’t understand the insurance they purchase. Apparently you are one of them?

  4. Kristen’s article shows it’s about return on investment not affordable healthcare that’s the issue for the insurance industry. No wonder they’re pushing for mandates. They still don’t get it do they.

  5. Interesting, but not realistic. The lack of uptake of HSAs to date should be a good indicator that most people are not comfortable with this model. It only appeals to those who share the underlying economic and political assumptions that go with it. This means a really small minority. People do not want to **plan** for health care costs because they do not want to **plan** to be sick any more than they want to plan to be dead. Why put away money for something you don’t expect or want to happen?
    Further, confidence in banks is no higher than confidence in health insurers, maybe lower. What consumers are faced with is a variety of bad choices to whom to entrust their healthcare dollars: employers, government, insurers, banks. Confidence in any of those is low.
    One thing that seems certain is that we will not know exactly what changes are in store for health care financing until the next president digs in on the issue. One thing for sure, it will not turn out as anyone predicts.

  6. Banking industry is interested in two things right now in regards to healthcare:
    -Serving as custodians for HSA accounts
    -Offering varied services to providers (almost entirely hospitals) around electronic fund transfers and other payment processes.

  7. There are some positives regarding CDHPs but the infrastructure and work processes to support these plans have a long-way to go to make them work as advertised. Given the number of entities that have to change in the healthcare ecosystem to make CDHP plans really work, this is not something that can be solved in the near-term either (next year or two).
    More importantly, the information available to customers on cost and quality is just not sufficient to make these plans work either. It is just not possible today to “shop” for medical services as some market advocates would advertise and anyone who tells it is because it is just largely due to providers reluctance to disclose is not being truthful. Again, this is not something that is also not going to be solved in the next year or two either.

  8. It would seem that regardless of what direction the government chooses or the health industry pushes its all about who will foot the bill (follow the money). Under any scenario more and more health care cost and responsibility will end up in the hands of paying consumers – I guess they are the least able make change because they are inherently fragmented. Consumer responsibility is not necesarily bad as long as consumers have the tools to assist them. Consumer probably have the desire but dont have the time to manage their own healthcare costs. There are a few medical cost advocate companies and bill reduction companies out there that can help consumers reduce out-of-pocket medical costs. It can be so frustrating to pay $1000 in premiums each month and still get bills for deductibles, coinsurance and out-of-network. That is where we are today.

  9. Good piece and good questions.

    “What is this convergence and what does it mean? Who is in the market and what is the next wave? What should buyers of the services seek in leading practices? What is unique about M&A in this cross-industry market?”

    Pardon me if the html doesn’t work. 🙂
    Let’s start with the assumption that there really are 6 million uninsured legal residents in the U.S. There are some 14 million self-insured, and they should not be called “uninsured.”
    The question then becomes, will the self-insured be forced to buy insurance, and how will they be forced to change or given incentives to change? And will the “under-insured” be given incentives to upgrade their policies by switching to higher-premium, lower cost, tax deductible plans?
    Even if the number of prospects is only, say, 14 million to 20 million, that’s still a lot of new customers for insurers and financial institutions who would offer banking services for the HSAs, MSAs, or whatever.
    Some banks already are offering HSA services, and others, like Unitedhealth Group have deals with banks or own banks that are in the business. The convergence is well under way.
    Given the financial crisis and Washington’s pining for new regulations, which probably are needed, I’m wondering whether there will be much M&A, especially “cross M&A.” Banks will go back to being banks, insurers insurers and consumers will have to or be able to shop both markets.
    Can insurers shift from being group oriented to selling individual policies without being scooped by new entrants. The record for incumbents defending against new entrants is not good, but health insurers seem to be very aware of the individual market, and most already offer individual policies. I’m thinking about how slow telecoms were to offer DSL, yet they’re in that market big time today, and we’re suffering from their reluctance to take us into the 21st Century. So cable and satellite companies are taking them on.
    Frankly, I wonder why anyone would want to get into the heavily regulated, scandal prone and politically unpredictable health insurance business. If venture capitalists refuse to fund new entrants, then the incumbents will continue to have the market to themselves.
    Just some thoughts.

  10. That is world class dope you’re smoking, Karen. Where can I get some? Go back to the beginning of the decade and look at the forecasts of enrollment in CDHP’s by the Forresters of the world, and then compare them to what actually happened. There are maybe 5 million people in CDHP’s right now, compared to the 20 million or so that are expected. I’m a big fan of HSA’s but they are still a long way from a mainstream alternative for most families. Until they figure out what to exclude from the huge front end deductibles and how to incent people to take better care of themselves, they are going to remain a niche product.
    After the great job banks have done on customer service, I’m sure people are going to flock to them for their health insurance. It is far from clear that people will choose to be covered by institutions have no credibility or track record in health coverage, no experience with the provider sector and all the games played there, or how to deal with people in some degree of emergency. You may sell a lot of consulting gigs to gullible financial institutions with this crap, but you sure aren’t going to meet a lot of unmet needs. I understand there are a lot of uninsured people in China; why don’t you send them over there.

  11. Good article. If such a ‘mandatory’ provision passes, its likely it will include legislation what “minimum” coverage is defined as, much like what minimum auto coverage means in mandatory states. Will there be a federal minimum or will it be left to the states?
    I think though, that mandatory coverage requirements, will not solve the fundamental problems of pricing and costs. Most people do want coverage- thats not issue. A mandatory requirement will put an additional load on a stressed system already, and premiums are bound to increase. This may criminalize a large percentage of people who simply can’t afford health insurance or can’t get insurance.