Investments: HSAs' Superfluous Feature
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24 June 2009
I am currently in the process of wrapping up Celent's latest round of HSA (health savings account) benchmarking. The report is due out shortly, but I thought I'd share a "sneak peek" of one of the report's most surprising findings. In the latest round of our benchmarking study, we asked banks and HSA administrators a new question, about the percentage of HSA accounts that had an investment balance. When I tallied the responses, the results were startling. Among the major players (Top 25 Banks, Specialists), the average percentage of accounts with investment balances was 2% and 1%, respectively. Wow. All that functionality for practically nothing -- the investment options, sweep functionality, card processing (for investment sell-offs), reports, etc have been developed, but with almost no takers. The reasons for this lack of investment pick-up are reasonably clear. First, there is the general performance of the economy and stock markets, which is scaring away many people who may have previously considered investing their HSA funds. The second reason is that the average HSA balance is about $1,500, which is below the balance thresholds (often at $2,000 or more) that many banks set for investments. The little secret behind high thresholds is that banks often make more money from deposit balances than from investment balances. In follow-up interviews, many of the benchmark participants acknowledged that the number of accounts with investment balances was extremely low, but that investment features had to be offered anyway. Simply put, investments are considered the "price of entry" in the HSA RFP process. Seems like a "lose-lose" proposition to me. Without investments, HSA players can't bid for employer business. With investments, HSA players pay to support a hollow feature. Given the current economic situation, I doubt we'll see any improvement anytime soon.