Health Savings Accounts Attract Wall Street

I'm a little late on this story, but I just read it on my Palm while I was waiting on lunch.

Banks and others are drawn by the promise of lucrative fees they can generate by offering consumers mutual funds and other investment vehicles as their account balances grow. Most also charge $50 to $75 to set up a health savings account, and they collect perhaps $40 or more each year in maintenance charges and service fees.

Not since the creation of the individual retirement account in the mid-1970's has such a potentially huge mountain of money landed in the lap of the financial services industry.

"Billions of dollars that used to be written in the form of checks with insurance companies' names on them would instead go to credit unions, banks, and long-term investment houses," said Dan Perrin, the publisher of H.S.A. Insider and executive director of the H.S.A. Coalition, a lobbying group backed by 70 small-business and medical industry groups as well as the American Bankers Association. "You know America: you see a financial opportunity and it sets off a gold rush."

Two years ago, not a single major bank offered a health savings account. Only seven small banks had any sort of plan. Today, more than 300 financial services companies, including big banks, are taking deposits or will be soon. About 150 more are on the way. Some of the country's biggest health insurance providers have started their own banks.

To be sure, health savings accounts will make up only a small fraction of earnings at a financial giant like Citigroup. But at a time when deposit growth has slowed and higher interest rates have hurt profits, they represent a steady stream of new income that is increasingly hard to find. Banks are betting that what the administration calls consumer-directed health care catches on.

Supporters say that the discipline and marketing might of financial services giants could spur the adoption of consumer-directed care. Critics argue that the banking industry's involvement only bolsters their case: the accounts are more about wealth than health.

The first thing that pops out at me is the fees banks are charging for HSA's. High fees were a big argument waged against private Social Security accounts and are a valid concern. But, my guess would be these fees will go down once the market is saturated with every bank and health insurance company around competing for the HSA dollar.

The other noteworthy aspect of this article is the "If you build it they will come" attitude. Government created a program allowing health care consumers market choices and the market is flooding the country with different insurance and banking options. These choices are great because they're not tied to someone's employment and there's greater competition. The next thing GWB needs to do is allow insurance company competition across state lines and allow pre-funding of the HSA.

Also, imagine what would happen if the federal government started giving out school vouchers. Based on this article it would seem there would be a whole bunch of schools opening up.