By Kevin McKechnieCredit cards and mortgages, deposit products like CDs or personal loans—these make up the well-known utility-like infrastructure of the banking industry. At the same time, out-of-pocket costs for health insurance have never been higher, meaning that the overwhelming majority of health expenses are being paid from personal bank accounts, not through insurance reimbursement.
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Like it or not, medical banking is here and growing where other features of banking are simply stagnant. Account-based health insurance products like HSAs are growing between 10 and 30 percent each year—every year. Devenir Research says that the number of HSAs is up to about 24 million in 2018, an 11 percent increase over 2017. In 2019, that figure will be even higher.
There are a lot of reasons for banks to want to service this growing consumer segment. The first, but perhaps the least obvious, is that the law says every American must be insured. No such mandate follows any other financial product.
The second is that retirement metrics are in banks’ favor. According to Fidelity Investments, last year, a retiring couple would need approximately $280,000 to pay for the things Medicare doesn’t.
And HSAs offer one more tax benefit existing retirement products do not: So long as HSA funds are used to pay qualified medical expenses, then contributions, year-over-year interest and distributions are all tax free. There are no retirement products that have the same structure. It’s either taxed going in or taxed going out.
More to the point, as the largest generation in American history, the millennials, enter the workforce, they are looking for ways to increase their compensation, not their benefits. HSAs are about dollars in an account for personal healthcare, they grow year after year when saved and can be used in retirement tax-free for qualified medical expenses. To a group of people in more debt than any other segment of society—the 69 percent of the class of 2018 that graduated with debt shoulders on average $30,000 in debt each—money in an account is an attractive incentive.
Social Security, absent revision, will need to either collect more taxes or cut benefits by 2034. Medicare is in the same boat—it only has another eight years before insolvency looms. Health insurance costs today more than double what it cost just 10 years ago. To that end, HSAs are also a powerful way to deepen relationships with commercial customers, since they provide an additional touch point in the business and give employers a tool to constrain those climbing health-care costs.
Employers and their employees are turning to tax-advantaged HSAs as a personal wealth creation tool, not just for the health care expenses of today but to provide some measure of financial tranquility in retirement. HSAs are not a fad. They are a critical part of financial planning that banks of all sizes can supercharge for their customers.
Kevin McKechnie is executive director of ABA’s Health Savings Account Council.