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Banking on health care

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The amount of money flowing into health savings accounts over the next five years could run into the billions of dollars. (TIMOTHY A. CLARY/AFP/Getty Images)
Health Savings Accounts are generating lots of attention from consumers and and lots of money for businesses. For consumers, HSAs are a tax-free way to save money on medical bills. For banks and insurance companies they could be a lucrative new area of business. HSAs are part of a new trend in insurance, something known as "consumer-driven health care." Several major companies, including BlueCross BlueShield and UnitedHealth Group, are chasing the profits generated by this new industry. In the process they're entering new business territory. Consumer-driven health care is blurring the lines between insurance and banking.

Worthington, Minn. — The rapid growth in Health Savings Accounts taps a common feeling.

"I feel think that health insurance is too expensive," says Wayne Nelson, president of a group called Communicating for Agriculture and the Self Employed. It lobbies Congress and state legislatures on a wide range of issues, including health care. It also provides access for its members to different types of insurance, including Health Savings Accounts. Nelson bought one of the the new policies for himself. The South Dakota farmer is happy with the result. He pays about $450 a month compared to $750 with his previous plan.

"It's not the silver bullet that's going to save everybody," says Nelson, "but I think it can go a long way towards helping people that are already insured to keep their costs lower."

Nelson puts money each month into his Health Savings Account. He uses the dollars to pay medical bills -- up to his $2,000 yearly deductible. Anything over that is covered by insurance. If his health is good, it's likely Nelson will accumulate thousands of dollars in the account. He collects interest on the money and may invest some in the stock market.

Nelson and and more than a million other Americans have Health Savings Accounts. It's estimated that right now they've deposited about $600 million in their HSAs. The figure is expected to increase rapidly over the next five years into the billions of dollars.

"We think it's the future; we're making a lot of investments to stay at the front end of, really, a very entrepreneurial business environment right now," says Dave Spalding, business development vice president of BlueCross BlueShield of Minnesota.

BANKS SPROUT WHEN HEALTH CARE COSTS GROW

He says HSA growth is explosive. Spalding says the potential is so great, BlueCross BlueShield is entering a new field. It's starting a bank.

"The bank is focused on providing additional services to our consumers," says Spalding. "It will provide investment services primarily; its initial focus is on HSAs. It's very focused on being a medical bank."

Nicknamed the Blue Bank, the Blue Healthcare Bank is expected to be chartered this year. It'll be based in Utah, a leader in what are called "industrial banks." These banks generally handle one specific task; WalMart has one for credit card transactions. For BlueCross BlueShield, the focus will be health care.

Spalding says he hopes the Blue Bank will give customers a seamless Internet method to handle their medical needs. Customers can store their Health Savings Account dollars at the bank. They can invest the money. When they need to pay a bill, the bank will handle the transaction. Spalding believes this sort of in-house expertise will attract new customers to BlueCross BlueShield.

"We get benefit by serving our members which, of course, drives more business towards us," says Spalding. "If we are providing more value added services hopefully we'll be rewarded in the marketplace."

BlueCross BlueShield is far from the only insurance company looking for rewards. MetLife, State Farm and Twin Cities-based UnitedHealth Group all have banks in operation.

HOW IT WORKS

John Prince, CEO of UnitedHealth's Utah-based Exante Bank, says the bank aims to be a one stop financial center for the company's customers.

"UnitedHealth Group more than four years looked at the health-care market and saw the convergence of health care services and financial services," says Prince. "And so at that time based on the convergence, thought it would be strategically necessary to have a bank as part of its portfolio of companies."

That convergence was pushed by a new generation of health insurance plans. Flexible spending accounts, medical savings accounts, Health Savings Accounts. Each required someone to track and invest customer dollars. At the same time Internet banking was in full swing. Prince says the company saw an opportunity to combine the two. He says a pilot program run by the bank is designed to simplify the all too complicated world of settling a medical bill.

"When somebody goes into a doctor's office, they present their UnitedHealth Care card and the physician is paid in full at that time," says Prince. "And then we settle up between the insurance side and the consumer side of what is the consumer liability. So the consumer comes out of there with the insurance company paid X. Their account, if they have one, whether it's a Health Savings Account, flexible spending account, paid the following and so their balance is Y."

Prince says Exante Bank also has business customers. Sixteen small insurance companies have contracted with the bank to handle administrative work on health policies. The entry of health insurance companies into banking is mirrored on the financial side, some banks are selling health insurance. Aamer Baig says it demonstrates the wide-open business frontier that's just beyond the traditional borders of insurance and banking. Baig is a partner at DiamondCluster International, a Chicago-based management consulting company. He wonders which companies will prosper in the the pioneering drive to merge health and money.

"It is a little too early to tell, given that we're only two years into what could be a pretty big growth opportunity for both financial services and health care," says Baig.

He says so far no company has scored a resounding success. He says it's likely some will reassess their position.

"We actually believe there's a very strong case to be made for both insurance companies and banks to partner," says Baig. "The skills and the knowledge that each of them have is quite complimentary."

There's risk in any business venture, and it's easy to find the uncertainties in the emerging field of health care banking. Predictions are for massive growth in Health Savings Accounts and other consumer-driven health care products. If the predictions fall short, there will be less profit for companies and more chance of failure.

THE UNKNOWN: POLITICS

Politics may be the biggest unknown. HSAs were created by Congress. One piece of legislation could drastically alter prospects for the accounts and other health care tools. All it takes is one election to shift the prevailing political thought. Most companies in the field however believe individuals will choose or be forced into a consumer-driven health care plan.

If that happens, they believe there will be enough growth in the field to profit everyone.

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