Opposition raised by small banks concerned that Wal-Mart would put them out of business has resulted in congressional and regulatory scrutiny over how the bank charters are granted. While health insurance banks pose no similar threat, their efforts may become collateral damage of the brouhaha.
"If the industrial loan corporation is the structure health insurers use, it will be difficult," says Jeff Infusino, a senior member of the financial consulting practice of Mercer Oliver Wyman. "Regulators aren’t giving out a lot of charters; it’s generally very hard to get approval."
UnitedHealth Group is the only health insurer to operate its own bank, Exante Bank, an industrial loan corporation based in Utah. But in December, the Blue Cross Blue Shield Association announced plans to open a bank by January 2007. "To my knowledge, we’re moving forward with an application on the federal level," Blue Cross Blue Shield spokesman Paul Cholette says.
Advocates for consumer-driven health care, who believe financial services companies are better equipped to manage the monetary transactions between doctors and patients, say insurers should stay out of financial services. Health insurance companies should partner with banks rather than compete with them over the small but growing market for health savings accounts, says John Casillas, executive director of the Medical Banking Project, a think tank focused on integrating the banking and health care systems.
"The reason is simple," Casillas says. "Banks have capabilities to create a real-time transaction process in health care. We have a lot of waste in the health care industry today, and the banks are uniquely positioned to reduce paper waste."
Casillas says 30 percent of national health care expenditures are wasted on administrative costs, totaling $300 billion annually. Reducing paperwork by using the infrastructure of a financial services company to move money from patients to doctors, hospitals and pharmacies would make health care less expensive for employers, he says. Also, since health savings accounts are owned by individuals and not tied to an employer or insurer, it makes sense to have the account managed by traditional banks, Casillas says.
Already there are some regional Blue Cross Blue Shield insurers who are not interested in banking with Blue Healthcare Bank. Instead, they are turning to existing banks to manage medical savings and reimbursement accounts. American Express has developed a debit card for the health savings accounts of customers of Empire Blue Cross Blue Shield in New York. Blue Cross Blue Shield of Illinois uses Mellon Bank to manage its customers’ HSAs.
CitiStreet, a joint venture between Citigroup and State Street Global, announced in April that it would begin offering health savings accounts. The company will get its revenue from annual maintenance and transaction fees.
"Over time there will be an accumulation of unspent dollars, so people will need advice around saving that and planning for post-retirement health," CitiStreet president Jim Murphy says. "You might not have the same insurance provider, but you’ll always have the account."
Infusino says health insurers may be motivated to establish banks as a way of protecting their brand. But, he says, this is wrongheaded. Forming strategic partnerships with banks makes more sense from a marketing point of view. Just as banks distribute other products, like AAA memberships, health insurers could offer their products through a bank’s distribution channels.
Moreover, a Mercer Oliver Wyman study predicts potential revenue from managing HSAs to be relatively small. The revenue from managing health savings accounts could be $1.7 billion by 2012, enough to entice only the largest banks to use their economies of scale to administer accounts—a function at which banks excel.
"Many health insurers, given how new this is, don’t have a well-formed view about where they are going to make money in the future," Infusino says. "The financial services companies and the health insurers need to ask the question: What do I do really well and where can I make money, given that health care is changing?"
Infusino used a sports analogy to answer his question: "It’s hard to play two different sports really well."