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August 2008 return to the table of contents

Consolidation In HSA Sector Starting

In a sign that consolidation in the Health Savings Accounts area is beginning, two banks have outsourced their back office activities.

Health Equity in Salt Lake City has taken over the operations of Union Bank in California and Westfield Bank in Massachusetts. 

These two banks are believed to have had about 4,000 HSA custodial accounts.  This is reported by industry experts to be the threshold of accounts where the servicing starts to get a little cumbersome if not automated. 

For many financial institutions, the automation is particularlly needed in the enrollment and funding areas.  Both institutions are believed to be operating on a outsourced platform, ie Open Solutions, Connect Your Care or Canopy.

Neither bank is reported to have shopped the market to get a deal for the accounts or the deposits. 

As one bank officials told this newsletter, "for the right price we may have been interested in the business if afforded the opportunity."

Information Strategies, Inc. (ISI) first surfaced this trend late in 2007 and predicted that as many as 40 banks will seek to outsource their handling of HSA accounts by the end of the year.

Reasons given for the change include difficulty in explaining HSA requirements to potential clients as well as lack of staff training.

Over the four years of their existance, HSAs have proven to be a teeth-shattering experience for many financial institutions. 

ISI's studies of HSA returns for financial institutions indicates that there is an 18-24 month lag period before they are profitable on a cost basis.

Many financial institutions have faltered in their marketing of HSAs and several are contemplating either scaling down or abandoning this area if fourth quarter numbers do not improve.


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