Friday, November 27, 2009

Remediation Plan for Canopy Financial Omnibus Custodians

The meltdown at Canopy Financial is apparently placing client financial institutions' customers at risk sooner than expected. With most of the employees laid off, there are serious questions about how much longer the servers will keep running. I myself have an account at Sovereign Bank and am monitoring the situation. For those of you at Sovereign, Wachovia, Fifth Third, or CareMark, I am liaising with ABA HSA Council members to coordinate a response.

Some alternatives to Canopy are readily apparent. Lighthouse 1 has announced its interest in helping former canopy clients. Metavante would be another choice. Both of these vendors already assume an omnibus model, just like canopy. As a public company, Metavante might better smooth anxieties after the Canopy fiasco.

The project plan for the actual transition will be more complex. A couple suggested starting points:

1. Sourcing replacement: make/assemble/buy. As a vendor and a purchase, I've used RFPs for HSA services that ran to hundreds of pages.
2. Managing customer reaction: needs quick PR pieces re: security of data, with focus on HIPAA processes and how the PHI on the system will be retained
3. Managing transition to new CIF, if possible, so as not to fracture the back office.   

If you are interested in learning more, drop me a line. I have a number of executives from the credit union, community banking, and software services industries that are collaborating on a solution.

Tuesday, November 24, 2009

Tough Times for HSA Software Vendors

In a recent post, I cited HSA adoption figures from Canopy Financial. TechCrunch reports today that allegations of financial irregularities may be taking Canopy down. As pointed out by the TechCrunch, Canopy had been widely perceived as the market leader. At present, their website is down.

Could it be that the health spending account software model just doesn't work? Earlier this year, Members Health Network, the leading HSA software vendor to the credit union industry, liquidated its assets. According to an executive at HSA Bank, which has done custom work to modify a more standard core accounting system, there is just "not enough money in HSAs to split between the custodian and a service provider like them."

It will be interesting to see what other firms may attempt to take their banking clients, like Sovereign Bank, who had charged ahead touting a whitelabeled version of Canopy's product. Yet another joy for Santander, which acquired Sovereign last year. My bet would be, which has been around for a long time cautiously growing its network of insurance brokers that support its product. [EDIT 12/02/09 -- HST 's parent company, according an an executive there, has "made a decision to focus our human and financial capital on the Insurance Company that we acquired and reduce our emphasis on HST".]

Thursday, November 12, 2009

Reid's Funding Mechanism for Senate Bill Rewards Cats

According to today's Washington Post, Senate Majority Leader Harry Reid will shortly be announcing a plan to pay for healthcare expansion by increasing the federal Medicare payroll tax on high-earning individuals. This would be a big win for those firms that coordinate consumer-driven healthcare mechanisms with employers to exclude income from the federal Medicare payroll tax. Current law sets the tax at 1.45 percent of income, an amount matched by employers. An increase to the tax would increase the substantial incentives already existing to coordinate health care around a site of employment (see earlier post on cats versus dogs for more on these incentives).

The increased tax would likely be restricted to individuals earning $250,000 or more. These individuals already have an incentive to contribute the maximum allowable amount to a family health savings account (HSA), $5950. While the employer's share of the Medicare tax avoided through those contributions is only $86, it pays for a lot of account administration fees. If the tax doubles, the incentives of employers to put HSA utilization programs in place roughly doubles as well. Using an ASP software service costing a few dollars per employee per month, the employer would net a substantial savings across a broad employee base.