FRC: HSAs to Grow, But Issues of Profitability Exist

March 22, 2005 (PLANSPONSOR.com) - Health Savings Accounts (HSAs) will number 8.2 million and have assets of $50 billion by 2010, according to a white paper from the Financial Research Corporation (FRC).

Despite these figures indicating large growth in the newest form of consumer-directed health accounts, however, the white paper suggests that the HSA market poses considerable risks for financial service firms. One major concern, according to FRC: profitability.

“Because margins for health savings accounts will be slim early on, firms that have the greatest success in this market will be those that find ways to harness a core competency, be it recordkeeping, investment management, or serving as a custodian,” says Chris Brown, vice president and Director of Retirement Market Research at FRC. Overall, however, FRC is predicting a healthy outlook for the consumer-directed accounts.

The white paper also indicates that the HSA represents a “positive step forward” in solving healthcare cost issues. Also explored in the white paper are:

  • Marketable features of the product, including tax breaks and full discretion over things such as contribution levels, medical uses, investment managers and products.
  • Distribution models through which workers can gain access to the product.
  • Market drivers – namely rising health costs, but also the shortfalls of Medicare and the rising number of uninsured workers.

The white paper – The Outlook for Health Savings Accounts – was based on a review of the industry and a series of interviews by FRC ( www.frcnet.com ).

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