Blue Cross Plans Bank
By Richard Craver, Winston-Salem Journal, N.C.
Feb. 27–North Carolinians who have health-savings accounts are likely to have more choice next year in where they invest that money.
The Blue Cross and Blue Shield Association, the umbrella organization for Blue Cross insurers in various states, filed a request in January with the Federal Deposit Insurance Corp. to operate Blue Healthcare Bank. The insurer said that its bank could provide administrative and management services to the 70 million employees of its member companies by early 2007.
“Developing this bank represents a key component of the Blues’ leadership and our vision for a better health-care system,” said Scott Serota, the association’s president and chief executive.
The association is waiting for a response from the FDIC.
A health-savings account is a portable, tax-free savings account used for medical expenses.
At stake is the $75 billion in assets expected to flow into health-savings accounts by 2010, according to DiamondCluster International Inc., a management-consulting company. The company estimates that there could be up to 20 million health-savings accounts by 2010, up from about 1 million in 2005.
DiamondCluster predicts that health-savings accounts, which are supported by the Bush administration, could generate more than $1 billion in annual transaction fees by 2010, as well as $800 million in asset-management fees and $450 million in account set-up and management fees.
Blue Cross and Blue Shield of North Carolina is considering how it would use the proposed Blue Healthcare Bank for its 3.3 million members, said Mark Stinneford, a spokesman for the state plan. Mellon Bank handles its health-savings accounts.
“Members have greater responsibility for handling their health-care needs, so anything we can do to make that process more efficient is a plus,” Stinneford said.
To be eligible for a health-savings account, a patient must first have access to a “high-deductible health plan,” which typically covers major medical expenses, including surgery costs and hospital stays. By having higher deductibles, patients can reduce their premium costs for health insurance.
Under the plan, an individual cannot contribute more than $2,650 a year into the account, and families cannot contribute more than $5,250. Using the accounts for nonmedical purposes can result in a big tax liability for each transaction.
Use of the accounts remains small in North Carolina, according to Carrie Aaron, the president of PEO Network, a human-resources consulting company based in Raleigh.
The money in health-savings accounts can be invested in stocks, mutual funds, 401(k) plans and real estate, which is why the accounts must be handled by a financial institution. Consumers can be provided with a debit card, linked to their health-savings account, to pay for doctor visits.
Similar health-care plans, such as health-reimbursement accounts and flexible-driven accounts, are managed by employers through third-party vendors and don’t offer investment options to employees.
Marc Fusaro, an assistant economics professor at East Carolina University, said that Blue Cross Blue Shield likely does not want to operate a full-service bank.
“Instead of outsourcing the business, they have decided to do health-savings accounts in house,” Fusaro said. “But to do this service, taking deposits, they need to be registered as a bank.”
Blue Cross is not alone in aiming at health-savings accounts. United Healthcare Group created Exante Bank in 2002 to provide health-related financial services.
Aamer Baig, a partner in DiamondCluster, said that banks might not mind health-care insurers providing administrative services for health-savings accounts.
“Many banks will be willing to forgo the administrative tasks of record keeping, safekeeping of funds and managing the enrollment process,” Baig said. “The Blues could potentially do these activities well.”
“But the higher revenue opportunities exist in asset management and transaction processing,” he added. “If the Blues’ new bank is to house assets and facilitate payments, we expect banks to compete fiercely to hold on to their advantage there.”
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