As a financial institution, it’s critical to stay on top of the challenges your commercial clients face, and the solutions they’re seeking, so you can both serve your current clients’ needs and attract new ones. One of the most acute challenges companies are now facing is the inflation on the price of health insurance plans and other benefits. Companies are also increasingly looking for a one-stop-shop for all of their banking needs that offers not just a good relationship and place to park their money, but the full range of products they need to run their business. 

That’s where High Deductible Health Plans (HDHPs) and Health Savings Accounts (HSAs), come in. In this post we’ll give financial institutions everything they need to know about how HDHPs are changing the benefit landscape and why offering an HSA to current and potential commercial clients will help you increase sales and revenue. 

What are HDHPs?

HDHPs are health insurance plans that, for 2024, carry a deductible of at least $1,600 for individual plans and $3,200 for family plans. They also typically carry the lowest annual premium of the traditional health plans and perhaps because of this, more than 50% of private sector employees are now covered by one. As long as the HDHP meets affordability standards set by the Affordable Care Act (ACA), the employer can also offer its employees an HSA. The annual deductible and out-of-pocket maximums for these plans is set annually by the IRS. 

Why HDHPs and HSAs are so popular

HDHPs and HSAs are popular employer benefits because they help employers and employees alike contain health insurance costs, provide employees with a financial wellness benefit that helps them to save money for medical expenses, and help reduce employee financial stress while improving productivity. 

The average annual premium for a family health plan (non-HDHP) in 2023 was $23,968, of which, workers contributed $6,575. The average family health plan premium for an HDHP in 2023 was $22,378, of which workers paid $5,173. That’s over $1,000 in savings (per worker) for both the employee and employer. 

Offering an HSA alongside the HDHP saves employers even more money because employee contributions are tax-free (thus lowering the employers’ FICA responsibility). It also gives employees a chance to offset the higher deductible and more choice in how they spend their healthcare dollars. Since choice has become increasingly popular among job seekers, the HDHP and HSA combination can help employers improve both recruitment and retention efforts. 

By building savings to pay for health expenses when they arise, employees are more likely to get the medical care they need. Which leads to a healthier and more productive workforce.

Stop giving away fees, interchange and deposits to other financial institutions

Given the popularity of HDHPs in the private sector, the odds are that half of your commercial customers are offering one to their employees, along with an accompanying Health Savings Account. That means if you’re not offering these customers an HSA product, another bank or financial institution is. To determine the opportunity cost for your institution, consider this simple exercise:

The number of likely HSAs for your financial institution:

• The number of commercial clients you have: 30,000 (an estimation for the purposes of this exercise) 

• An estimated 50% have an HDHP/HSA: 15,000

• The average U.S. employer size is 26 employees

• That’s 390,000 HSAs

• Typical 1st year employee adoption of HSAs is about 25%

• So that’s 97,500 HSAs

Amount of likely fee revenue:

• Average balance of HSAs nationally: $3,000

• With 97,500 accounts, that equates to $292.5 million in core deposits for the financial institution.

• Estimating a 4% net interest margin, that equates to $11.7 million in revenue on those assets.

• If you estimate a $15 annual interchange fee per account, that’s an additional $1.46 million in interchange revenue a year.

In this scenario, not having an HSA to offer your current commercial banking clients results in an opportunity cost of more than $13 million in annual revenue.

How HSAs can help capture new banking relationships and keep existing ones

For banks and other financial institutions to capture new banking relationships and revenue, and keep existing ones, they have to pay attention to small and medium enterprises (SMEs). In the U.S., there are approximately 30 million SMEs, which represents 99% of all U.S. companies. They employ over 60 million workers and account for 47% of private sector jobs. For the banking industry as a whole, SME banking represents approximately $150 billion in annual revenue. In addition, SMEs have stickier deposits than larger clients and about 41% of SMEs said they were likely to switch banks in the next 12 months.

To capture this “money in motion” and retain more of the money you have, you should consider offering an HSA. Here’s why:

1. SMEs want a one-stop-shop. They want the convenience of doing all of their banking in one place. So, if your current commercial relationships have another banking relationship that is taking care of their HSA, their relationship with you is vulnerable. By offering an HSA, you can help shore up that relationship by taking care of all their needs in one place. In addition, you can capture new relationships by offering a one-stop-shop.

2. SMEs want digital tools. By partnering with an HSA administrator like Lively, you can offer your SME commercial clients a best-in-class digital and mobile experience so they can manage their accounts and employees can manage their plans on the go.

3. SMEs want a financial institution that cares about relationship building. One that sees itself as a partner. By adding an HSA to your product offerings, you can help SMEs address their current business concerns: cutting costs, increasing employee benefits, improving recruitment and retention, and simplifying their banking. By partnering with an HSA administrator like Lively, you can rest assured that your commercial client relationships are in good hands because Lively has industry-leading customer service. Lively also offers staff education to its financial institution partners so every member of the team understands the benefits of its HSA products, as well as employer and employee education and onboarding support so that everyone feels taken care of.

Be aware of HSA compliance pitfalls

HSAs are regulated by the IRS and have strict rules in terms of eligibility. An employer must offer an HSA-eligible HDHP to its employees in order to also offer an HSA. An employee must be covered by an HSA-eligible HDHP in order to participate in an HSA. In addition, employees must be 18 years old, not be considered a dependent on anyone else’s tax returns, they can’t be covered by any additional insurance other than the HDHP and they must not be eligible for Medicare.

If an employee was eligible to participate in the HSA, but becomes ineligible at any point, he or she can no longer contribute to their account. But they still retain access to the contributions both they and their employer (and anyone else) made previously.

When considering offering an HSA, and working with an HSA partner, Financial Institutions should consider how the HSA platform simplifies compliance. Because HSAs have contribution limits set annually by the IRS, the account holder and administrator dashboards should make it clear when the account holder is approaching their annual contribution limits in order to avoid over contributions. Over contributions are penalized by the IRS and can create a headache for both the financial institution and the account holder. HSA providers should also have features to ensure reimbursements from medical providers are correctly coded and that enable account holders to easily search for and identify qualified expenses so they ensure their HSA spending stays in compliance. Working with an HSA administrator who has built a platform that reinforces compliance can streamline the workload for a financial institution, as opposed to creating more overhead.

Why Lively

As your partner in offering your commercial clients the most comprehensive suite of products possible, Lively goes above and beyond to ensure your success. Here are the features Lively offers that will allow you to achieve market differentiation and high customer satisfaction:

1. Expressly designed digital tools. Our mobile app and employer dashboard put all of the important information upfront and center in a clear, concise design. Employers have access to reports that provide actionable information so they can monitor plan usage and success.

2. A co-branded solution. Lively uses proprietary technology which allows us to offer a truly co-branded HSA solution to our financial institution partnerships. We can integrate seamlessly with existing systems, and even provide co-branded HSA debit cards that incorporate the branding of your institution your customers know and trust.

3. Two HSA investment solutions as well as a savings account. Lively HSA participants can choose to keep their money in savings or to invest their contributions in one of the two investment portfolios. This facilitates faster increases in deposit growth as well as customer satisfaction since HSA investment accounts are becoming increasingly popular and are even viewed as a minimum product requirement in the commercial space.

4. Compliance coverage. Developing your own HSA solution comes with compliance risks. Lively takes on the compliance risk for you with a readymade solution that you can offer as part of your branded product portfolio. Lively takes on all the heavy lifting for administration so you can stay focused on core banking initiatives.

5. Best-in-class customer service. We take supporting our customers (and yours) to heart. That’s why we have a customer satisfaction rating 3x higher than the national average, we answer 95% of calls in less than 30 seconds, all our customer service representatives are employees of Lively, and our commercial clients all have the support of a dedicated account management team. Because of our top-rated, personalized, expert support, our employer retention rate is 98%. 

As a financial institution, serving your clients’ financial and business needs has gotten more complex in recent years. It’s not enough to be an order taker. You must provide thoughtful solutions to their business challenges and meet their needs with ingenuity and modern products. Offering an HSA can help you do that. Offering an HSA with Lively, can help you do that successfully. If you’re ready to uplevel your financial product offerings, reach out today.