Friday, October 30, 2009

Cats versus Dogs in Consumer Driven Care

In this multi-part series, I'll take a look at the cats and the dogs of electronic health records (EHRs), health savings accounts (HSAs), wellness companies, and the software companies that power them.
As a general rule, cats like places and dogs like people. In electronic health records (EHRs), the cats are the Epic Systems-type databases that capture everything relevant to a particular provider. The dog EHRs follow the patients around, attempting to interface with multiple provider settings, like Athena Health.

In the world of HSAs, the cats like to cuddle up to a place of employment. Credit unions are the most numerous cats of the HSA world. Several large credit unions sponsored by Fortune 500 businesses have more than 90% of the employer group as credit union members. While an employer-sponsored credit union will let you stay a customer if you lose your job, a big chunk of employer-sponsored credit union value proposition comes from the existence of a relationship with the select employer group (SEG). Credit unions with strong SEG relationships tailor their products the sponsoring employee group. Baxter Credit Union, for example, also has SEG relationships with CDW and Cardinal Health, each of which gets to see a differently designed website. The credit union makes sure that HR people at the employer are well-stocked with informational material about the credit union, may offer discounts to current employee within the SEG, and are sure to show up at benefits fairs to answer any questions about complex products like HSAs.

While complex, HSAs offer powerful advantages in a setting of high employee penetration. With more and more employers scaling back to high-deductible health plans (HDHP), we will likely to soon see more Fortune 500 employers go "full replacement" with HDHPs and HSAs. For those large employers with credit union relationships, suppose 90% of the employee group already treats the credit union as its preferred financial institution. That means the transaction accounts for medical spending are likely to be all in one place. This is a tremendous boon for the employer, who with appropriate technology can make sure that those transactions run through the HSA, boosting FICA savings. Using the latest figures from Canopy Financial, which provides HSA account management software for banks, the average family's HSA received $3528 in contributions. [UPDATE: need to double check these figure given recent news on Canopy] This generates FICA and Medicare tax savings of up to $269 for the employer per employee. At the same time, however, half of the people eligible for an HSA don't open one. For a 100,000 person employee group, that adds up to over $13 million in annual payroll tax savings forgone (50,000 * $269).

Technology solutions now exist that automate both creation of the account, and to “touch down” normal checking and credit card transactions for medical purchases in the HSA, so that the employer gets the full tax benefit. For those employees that otherwise would not contribute to the HSA, an automated routine can identify their actual medical expenditures from non-HSA accounts (or EHRs) and momentarily touch down a matching amount from their next paycheck into the HSA prior to moving the funds into their normal direct deposit account. Without any decrease in availability of paycheck funds to the employee, the employee has now accrued a tax advantage. With the average family's out of pocket medical expenses for HDHPs reaching $2620, an employee grossing $44,000 gets a $620 tax savings, equivalent to an $812 pre-tax raise.
In theory, this kind of technology could be deployed anywhere. In practice, it's a lot easier when the normal transaction accounts, direct deposit accounts, and HSA are all in one place. With the upwards of 90% penetration of the employee population select credit unions, the tax benefits are much easier to capture there.

In addition to maintaining stronger employer-sponsor ties, credit unions tend to be more technology savvy than their banking counterparts. Regulations prevented credit unions from running their own back-office systems until relatively recently, so they are much more likely to be real-time central information file (CIF) systems than their banking counterparts. Also, the capital structure of credit unions has necessitated acclimation to technology-powered growth strategies. While banks can raise funds by issuing equity, credit unions are restricted to the paid in capital of their members. With new branches costing $1 million, credit unions have traditionally focused on growing through non capex spending like internet banking.

How will all this fare in the next round of federal healthcare reform? Roy Ramthun, former advisor to the White House on Health Savings Accounts, predicts that credit unions are better poised than banks to influence consumer driven care in federal health reform. First, Roy pointed out the CUs are better positioned financially than banks. Second, Roy indicated that mobilization of grass-roots will be key. While "death panel" screamers at town hall meetings this summer didn't do much for the anti-reform crowd, credit unions have historically been very effective at mounting well-organized shows of support. With the opportunity to save their employer sponsors millions of dollars, my guess is that the credit unions will meow for retaining HSAs and related employer tax breaks.

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