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New Blue Cross Blue Shield Bank Not a Threat to Financial Institutions - Yet

Posted on: Wednesday, 7 December 2005, 15:00 CST

CHICAGO, Dec 7 /PRNewswire/ -- The Blue Cross and Blue Shield Association's (BCBSA) plans to launch a new bank to administer savings accounts related to emerging consumer directed health plans will compete with those financial institutions that have already invested significantly in their back-office capability to help customers manage those plans, health savings accounts (HSA) and other health reimbursement assets.

But according to Aamer Baig, a partner in DiamondCluster International's financial services practice, other banks may welcome a new entrant that focuses on administration -- as long as the new competitor doesn't use this step to move into asset management or payments processing.

"From a revenue standpoint, the BCBSA play is focused on account management which is actually not the most lucrative opportunity for banks in the emerging HSA value chain," Baig said. "Many banks will be willing to forego the administrative tasks of record keeping, safekeeping of funds, and managing the enrollment process. The Blues could potentially do these activities well.

"But the higher revenue opportunities exist in asset management and transaction processing. If the Blue's new bank is to house assets and facilitate payments, we expect banks to compete fiercely to hold on to their advantage there," Baig said.

According to DiamondCluster estimates, health savings accounts will hold more than $75 billion in assets by 2010. Based on that forecast, HSA accounts could generate over $450 million annually in account set-up and management fees. The BCBS decision appears predicated on capturing a share of that revenue.

However, asset management fees could generate $800 million and transaction fees more than $1 billion in the same period.

"As this space evolves, large financial institutions that have retail, institutional, and transaction processing businesses may be in the strongest competitive position," Baig said. "But it would be folly to sell the Blue Cross Blue Shield competition short. If BCBSA can create a seamless experience and remove the pain points of managing a consumer directed health plan and savings accounts for their customers, their new bank certainly has the potential to be an important player in the healthcare value chain."

A DiamondCluster report, Seizing the HSA Opportunity - Developing a Winning Strategy to Grow Profits and Share in a Time of Transition," is available on request by sending an e-mail to: HSA@diamondcluster.com . In addition DiamondCluster and Goldman Sachs are co-sponsoring the Healthcare Consumerism Symposium, Jan. 18, 2006 in New York. The half-day symposium, featuring recognized industry leaders, will address critical elements of health care consumerism ranging from public policy implications to the anticipated rate of patient adoption.

Among the recommendations in the report, DiamondCluster says that winning HSA solutions will provide a seamless customer experience and include real- time pricing and expedited claims adjudication. They will empower customers with vastly improved access to health care information to help them become smart consumers. Finally, as HSA assets accumulate, financial institutions will have to offer top-notch investment capabilities to attract and retain assets.

Baig notes that the BCBS banking strategy is consistent with what he calls an HSA evolutionary cycle. In the current "exploration" phase financial institutions and health insurers (payers) are rushing to the market with new HSA products. However, these early efforts have suffered from a lack of integration between various components, leading to service and efficiency issues.

BCBSA's plans mark a milestone in the next phase, "integration and information," because it addresses the importance of delivering a more seamless customer experience. For example, if at the point of service the care giver is unaware of other claims, the provider may charge the patient a deductible, only to find out later that that the maximum deductible has been collected. The BCBS bank could possibly avoid those kinds of expensive, aggravating problems.

Baig said, "The BCBS banking strategy gives the Blues another means of touching and solidifying their relationships with their end-customers, the consumer, beyond their typical role in the claims process. If this move significantly improves their value proposition with consumers that's important, particularly as decisions about healthcare spending shift from employer-based coverage to consumer directed plans.

"However, there's no reason banks and other competitors can't respond competitively to build partnerships to better integrate the components of the HSA value chain," Baig said. "By 2010 the winners in the HSA sweepstakes will be providing consumers with top-notch investment alternatives to attract and retain assets. They will be empowering consumers with valuable information for managing their health. They will be delivering real-time pricing and expedited claims adjudication.

"No one player can do that alone," Baig added, "but financial institutions and payment organizations that can leverage their successful payments networks to promote a more open system are still in the driver's seat today. Those organizations also have a proven ability to shape consumer behavior and to use technology more effectively in integrating with other partners in the healthcare value chain."

About DiamondCluster International

DiamondCluster International is a premier global management consulting firm that helps leading organizations develop and implement growth strategies, improve operations, and capitalize on technology. Mobilizing multidisciplinary teams from our highly skilled strategy, technology, and operations professionals worldwide, DiamondCluster works collaboratively with clients, unleashing the power within their own organizations to achieve sustainable business advantage. DiamondCluster is headquartered in Chicago, with offices across Europe, the Middle East and South America. To learn more visit http://www.diamondcluster.com/ .

DiamondCluster's Financial Services industry practice collaborates with organizations from leading banks and global payments processors to top-tier Wall Street firms to deliver compelling, high impact solutions to their toughest business and technology problems. The firm's services include Basel II and risk management strategies, IT cost effectiveness implementations, customer-centered initiatives such as customer value management and multi- channel integration, and assembling and supporting business strategies such as merger/spin off integration, organic growth strategies, and competitive analyses.

Contacts: David Moon Media Relations +1.312.255.4560 david.moon@diamondcluster.com Laura Cinat Investor Relations +1.312.255.6167 laura.cinat@diamondcluster.com

DiamondCluster

CONTACT: Media Relations, David Moon, +1-312-255-4560, ordavid.moon@diamondcluster.com , or Investor Relations, Laura Cinat,+1-312-255-6167, or laura.cinat@diamondcluster.com , both of DiamondCluster

Web site: http://www.diamondcluster.com/

Source: PRNewswire

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