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.

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 http://www.hstechnology.com/, 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".]

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.

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.

Pareto-Optimal Wellness Incentives or Big Bad Wolf

The argument that wellness incentives are a "wolf in sheep's clothing" to pass along premium increases for pre-existing conditions assumes that the health plan, government, or employer (the "third party payer") doesn't want the covered individual to meet the wellness targets. The corporate wellness programs surveyed in the recent Washington Post article, however, set fairly low bars for employees to meet. This seems to indicate that incentives drive third party payers to choose wellness targets that are achievable. Looking at UnitedHealthcare’s Vital Measures program literature, for example, “the benchmarks for each category vary, but in all cases are easier to achieve than those published by the National Institutes of Health.” See also the Healthy Blue from Blue Care Network.


When the government pays, the benchmarks have tended not to be outcomes-based. Florida's Medicaid reform efforts have entailed:

• a $ 15 credit for six months of success in an alcohol or drug treatment program, a smoking cessation program, a weight loss program and an exercise program  
• two $ 15 credits for keeping all of his primary care appointments 
• one $ 25 credit for a colorectal screening per year
• up to $ 125 in credits per year, and then they may use those credits to purchase first aid supplies, cough and cold medication, and other items at any Medicaid participating pharmacy.

The move from "pre-existing condition" to "wellness incentive" emphasizes personal responsibility and the possibility for future improvement. Certainly there will be some people who try very hard and cannot hit the wellness outcomes required for the premium discount, but they are likely in the minority. Moreover, in many cases the behavior of the majority is positively impacted by a shift towards wellness incentives in plan design.

Employees who bear direct increased financial costs due to a wellness incentives can still end up in a better overall financial position. A number of options exist for a Pareto optimal outcome, where the gains from a change to the system can be used to compensate those harmed in the system. Failure to achieve a wellness target, for example, could function like a health risk assessment to trigger more coordination of care through a disease management program. If a group plan were designed so that some of the savings from the healthy behaviors were used to pay for disease management for the less healthy, everyone would be better off. I don't see requirements for this in current versions of the legislation, but those concerned with system fairness might pursue this approach.

Aside from concerns about system fairness, wellness plans may wish to offer disease management services as a “reasonable accommodation” in order to comply with the Americans with Disabilities Act (“ADA”). Wellness programs that target employees with chronic conditions (often the cost-driver employees) will inherently face legal requirements under existing federal ADA regulations and local analogues. Consider the individual with diabetes, who is often the focus of a wellness plan. Diabetes is sometimes a disability under the ADA if, for example, the individual proves that she was substantially limited in the major life activity of eating because of a severely restrictive and highly demanding diabetes treatment plan. Fraser v. Goodale, 342 F.3d 1032 (9th Cir. 2003). Or consider the two municipalities in California which prohibit employment discrimination on account of physical appearance, which lends some protections to overweight employees. Santa Cruz, Cal., Or. 92-11 § 1(9.83.010) (1992); City & County of San Francisco, Human Rights Commission, Compliance Guidelines to Prohibit Weight and Height Discrimination (2001), http://www.naafa.org/fatf/sf_height_weight_ guidelines.pdf.

Taking a health risk assessment arguably places the same burden on every employee, but the individualized health goals often will be much more arduous for an individual with diabetes. The net result: an employer is treating an employee with a disability differently than other employees. Thus the logic of the wellness plan offering disease management services which serve as the functional equivalent of a "reasonable accommodation".

Data Liquidity, not Coffee, in the Donut Hole

“The future is here, it’s just not widely distributed yet” -- William Gibson

Looking at the tags for this blog, high deductible plans and health savings accounts figure prominently. According the Health 2.0 festival pundits, however, we may soon be witnessing a shift from consumer-driven healthcare to consumer-participatory healthcare. Data liquidity, among other trends, is giving consumers information as well as incentives to hold down health care costs.

As an executive at HSA Bank, we constantly reminded our customers to ask for generic drugs. Consumer Reports, the federal government, and insurance companies have all been doing this for over a decade, but many patients still don’t get engaged in seeking generics. AARP, for example, provides a tool powered by DestinationRx with one of the best online calculators for helping seniors avoid the Medicare donut hole. Approximately 30% of people still prefer name brand drugs, however.  The next generation of online decision tools could change that.

Companies at the Health 2.0 conference last week in San Francisco would make the search for not just generics, but alternative courses of therapy, harness the wisdom of crowds (including group psychology). The Health 2.0 conference explored the possibility that Web 2.0 tools like Facebook could better engage patients in making behavioral changes. CureTogether.com, for example, allows users to compare the effectiveness of name brands, generics, as well as other approaches to management of diseases and symptoms. You can quickly become a member and see what others with similar health conditions are doing, and how successfully. While not enough data exists for all conditions, your participation will help the site gain critical mass. This kind of group-oriented psychology has been an enormous success in social and business networking, and just might work in health as well. If anecdotal evidence of the boomer generations' enthusiasm for sharing photos and chain emails is any indication, chances are this kind of Health 2.0 technology will make a difference in the donut hole.

The Best of Health 2.0 Conference, San Francisco, 2009

1.     Social networks as a part of health (1) -- “You spend 15 minutes with a doctor, and the rest of the time with everyone else” – Chris Schroeder, HealthCentral, as interviewed by Elizabeth Cohen from CNN

2.     Social networks as a part of health (2) – “make personally relevant information clinically relevant” – anonymous

3.     Competition – “Our competitors are cheeseburgers, couches, and intertia” – Alexandra Drane, Eliza

4.     Hype Cycle – “We should pay people to smoke [because in the short term, longer lives are more expensive to the system]”. -- J.D. Kleinke, Mt Tabor Online Services

5.     Slices of a blunt object – “It’s a big jump to ‘manage your condition online’. Maybe we need to take a step back and start with ‘schedule an appointment’.” – David Cereno, Microsoft

*approximate