WellPoint banks on the popularity of HSAs: Insurer moves to start bank, offer medical financing

To do so the Indianapolis-based health insurer is moving to start its own bank, whose initial role will be to hold and manage its customers’ health savings accounts.

An HSA is a relatively new breed of health insurance that places money-and more responsibility-in consumers’ hands. Well-Point bets more and more of its customers will start such accounts in the future.

“We expect to see continued strong growth for these products. There is a tremendous amount of interest in the marketplace for these products,” said WellPoint spokesman James Kappel.

WellPoint filed an application with the Federal Deposit Insurance Corp. on Feb. 9, seeking permission to start an industrial bank in Utah. WellPoint’s move follows a successful application by the Chicagobased Blue Cross Blue Shield Association to start its own federal savings bank to manage consumers’ accounts.

Consumer-driven plans typically combine high-deductible insurance with a health savings account or health reimbursement account. Consumers pay medical expenses out of those accounts up to a certain limit, then pay all or part of expenses until the high-deductible insurance kicks in.

The plans usually offer lower premiums than traditional HMO or PPO coverage. And in 2003, Congress made health savings accounts tax-deductible, as long as the money in them is spent for medical care.

Since that time, enrollment in the plans has shot up. From September 2004 to January 2006, U.S. enrollment in health savings accounts grew sixfold, to 3.2 million.

WellPoint’s enrollment in consumer-driven plans has more than doubled since June 2005, when it acquired Virginia-based Lumenos, a pioneer in health savings accounts. Well-Point claimed 821,000 members in consumer-driven plans at year’s end.

WellPoint currently contracts with New York-based JP Morgan Chase and Pittsburgh-based Mellon Financial to manage its customers’ health accounts.

WellPoint is happy with those banks and plans to keep working with them, Kappel said. But starting its own bank would position WellPoint to offer more products and services and do so “in a seamless process,” Kappel said.

“All the needs that an individual has are going to be housed within our company,” Kappel said. “There are some opportunities to offer some additional products than what we currently offer today.”

What exactly those are, Kappel wouldn’t say. But he did say new services might involve lines of credit and financing options.

Because WellPoint serves more customers than any other health insurer, its size could make it worthwhile to run its own bank, said Bob Boyer, head of the Indianapolis office of Mercer Health and Benefits, a benefits consulting firm.

WellPoint might save on administrative fees, which could allow it to price its consumer-driven plans below its competitors’.

“There should be some sort of administrative efficiency,” Boyer said. “They’re the largest. They might as well take advantage.”

WellPoint’s financing strategy is similar to a recent plan by hardware retailer Home Depot to offer its professional contractor customers loans for construction projects. To do so, Atlanta-based Home Depot announced last year it would acquire a Utah lender.

But when Wal-Mart Stores, the world’s largest retailer, applied two years ago to start an industrial bank, consumer and banking groups howled, saying the Arkansas-based giant would drive community banks out of business.

The FDIC has placed a moratorium on new bank applications for commercial businesses, but gave an exception to companies engaged only in financial transactions. That exemption appears to apply to WellPoint.

Kappel was vague about why Well-Point chose Utah. But the state is well known for lenient banking laws, including a recent statute that would uphold policies that, when signed by customers, waive their rights to file class-action lawsuits against the bank.

WellPoint is a licensee of the Blue Cross Blue Shield Association. It operates Blues health insurance plans in 14 states, including Indiana, but not in Utah.

That health insurers are starting their own banks demonstrates their high expectations for the ultimate success of health savings accounts and other consumer-driven plans.

“Three or four years ago, it was just starting to creep onto the radar. Now we’re seeing more and more employers offering a consumer-driven health plan,” said Boyer, the benefits consultant.

But the question remains, will employees sign up in large numbers? So far, only 2 percent of WellPoint’s 34.1 million insurance customers have a consumer-driven plan.

“Of course, it’s going to grow rapidly at the beginning, but that doesn’t really tell you much about the potential,” said Paul Ginsburg, president of the Center for Studying Health System Change in Washington. “I’m not at all impressed at the extent to which these products are being adopted.”