Banks pile into health savings accounts
By Ann Carrns, The Wall Street Journal, November 14,
2006
Just in time for benefits-enrollment season, health savings
accounts are getting a big push from your local bank.
Nearly 1,100 banks now offer the tax-favored spending accounts,
more than triple the number at the end of 2005, according
to market-research firm Information Strategies Inc. The growth
comes as more employees enroll in high-deductible health plans,
which are paired with health savings accounts, or HSAs, to
help pay for the deductible and other out-of-pocket medical
costs. But savings not needed to pay medical expenses can
accumulate in a HSA for years, and this has sparked bank interest
in offering such accounts.
The abundance of new HSA offerings is triggering competition
that is helping to push fees lower and expanding the options
for consumers to invest theibanks increasingly are offering
other investment options, including mutual funds, if consumers
have a minimum required balancr savings. Most HSAs previously
earned interest, sometimes at relatively low rates. Now, e.
Among other options: Bank of America Corp. is expected to
announce this week that it will introduce a new credit card,
in partnership with major health plans, that will let holders
earn rewards points that convert automatically into cash in
their HSAs. And in January, the bank's customers will be able
to invest their HSA balances in mutual funds offered by the
bank's Columbia Management arm.
J.P. Morgan Chase & Co., which previously marketed its
HSAs primarily through employers, will begin later this month
to allow individuals to enroll for the accounts online. The
bank also offers mutual-fund investments to its HSA holders.
The abundance of new offerings means consumers interested
in a HSA need to shop around. The accounts vary widely in
their structure and fees. Initial setup charges are $10 to
$20 at Chase, for instance, but free at U.S. Bancorp. Ongoing
monthly fees are $4 at BB&T Corp., but free at Huntington
Bancshares Inc. Not all banks disclose the fees on their Web
sites, while others make the information frustratingly hard
to find.
It doesn't help that interest rates paid on the balances
in HSAs vary widely. HSA Bank, of Sheboygan, Wisc., which
specializes in health savings accounts and has customers in
all 50 states, pays 1.98 percent interest on an average daily
balance of $1,000, although rates are higher for bigger balances.
Chase's current rate is 4.11 percent, regardless of the balance,
while Bank of America pays 2.96 percent. Some banks offer
a tiered system, including BB&T, which pays 1.49 percent
for balances up to $2,499. That jumps to 4.47 percent for
balances of $25,000 and greater.
The widening availability of HSAs is expected to help propel
the total number of accounts by year end to about 3.6 million,
holding $5 billion in combined deposits, according to Information
Strategies. That's up from 1.1 million accounts and deposits
totaling $1.2 billion at the end of 2005. The accounts are
fairly new -- Congress first authorized them in 2003 -- so
the number of account holders is still a small proportion
of health-plan enrollees overall.
HSAs are funded with pretax money, and income continues to
grow tax free. What's more, account holders don't have to
pay taxes on withdrawals as long as the money is used for
qualified medical expenses. However, withdrawals to pay for
other expenses are taxed, and the account holder will likely
also have to pay a penalty. Because the penalty disappears
after an account holder turns 65, HSAs are increasingly being
used as a tax-deferred savings vehicle to help cover both
medical and non-medical expenses in retirement.
To qualify to open an account, you must first be enrolled
in a high-deductible health plan, which typically charges
the consumer a lower premium than plans that have smaller
deductibles. About 75 percent of all HSAs have been opened
directly by consumers, but that percentage is expected to
slide as more big companies begin adopting the high-deductible
health plans to help reduce soaring costs of health-care benefits.
Some employers pay fees and make contributions into HSAs for
their workers.
Early offerings of HSAs were led by niche banks catering
to small-business owners wanting to offer some health-care
options to workers while watching the bottom line. Now, bigger
banks are increasingly getting into the business, attracted
by the lucrative combination of deposits, account fees and
sales leads for mutual funds and other investments generated
by customers. In turn, the presence of big banks in the industry
is expected to quickly spread awareness and hasten the adoption
of HSAs, experts say.
"We think it's going to be a great opportunity,"
says Karen Hill, vice president in the consumer-product management
group at KeyCorp, a Cleveland bank with branches in 13 states
that will start offering health savings accounts by year end.
And Huntington Bancshares, in Columbus, Ohio, will promote
its new health savings account, to be launched early next
year, to business customers interested in offering them to
employees. Individuals also will be able to open an HSA on
Huntington's Web site.
Industry officials say improvements are still needed with
HSAs, especially in areas such as customer service. For instance,
many banks offer debit cards that HSA holders can use to make
purchases. Most of these cards, however, aren't able to track
whether charged expenses are qualified to count toward a health
plan's deductible. This can be a big headache for customers
stuck monitoring their spending and holding on to receipt
