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>