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 / Summer 2007 / Issue 47(originally published by Booz & Company)


Health Meets Wealth

How health care and financial services can converge to revolutionize employee benefits.

Illustration by Lars Leetaru
Desperate for relief from the growing burden of health-care costs, employers have started shifting more of the responsibility for health decisions and financing onto employees. It is not yet certain where these moves will ultimately lead: which tests, procedures, treatments, and medications will actually be covered, and what percentage of them will be reimbursed. Forecasts range from the moderate — employers carving off noncore benefits and making dependent coverage an option, with employees bearing most of the cost — to the draconian, with dramatic cuts in benefits.

Employers and employees alike will need help navigating this evolution, and we believe the financial-services and health-care industries will come together to answer the concerns of both groups. Indeed, we’ve already seen signs that this is happening, although the movement is still in its very early stages.

As the two industries converge, they can capitalize on at least three types of opportunities: technological integration, which could, for example, lead to credit cards that are embedded with the holder’s electronic health record; new financial arrangements, such as collection services for doctors and other providers, including assumption of bad-debt risk; and unique blended products. Under the last category, we’ve already seen the emergence of consumer-directed health plans (CDHPs), which typically pair high-deductible major medical policies with tax-advantaged health savings accounts (HSAs) or health reimbursement arrangements / accounts (HRAs). Over the long term, we expect to see the emergence of a whole new class of innovative products and services that bring the sophistication of financial planning to health-care management, so that individuals will prepare for their future medical costs the way they now plan for their retirement expenses.

“Although it’s impossible to predict exactly how the system will operate over the long run, we are looking at ways to foster simpler, secure transactions while allowing for real-time information exchanges,” says Jay Gellert, CEO and president of Health Net. “We are focused on integrating the best of financial services and health-care management to improve the health-care experience.”

How can the health–wealth industry players best approach this opportunity? The key lies in the framework of the financial planning life cycle, which has long driven the creation and marketing of consumer and business banking products. The four stages of that framework are transact (to enable purchases when income is low), borrow (to finance purchases), accumulate (to ensure long-term security), and protect (to pay now to avoid a big hit later). There’s every reason to believe the framework can also be a useful guide to devising new classes of products that help consumers, employers, and health-care providers manage, plan for, and finance their health-related expenses. The company that adapts that framework to the evolving needs of those groups will have a real strategic advantage in the emerging health–wealth environment.

The marriage of health-care benefits and broader financial services carries the potential for new thinking about the nation’s savings behavior and lifelong wealth creation and management. One index to the size of the opportunity is the savings behavior of employees presently enrolled in employer-sponsored high-deductible health plans (HDHPs) with HSAs. According to Aetna HealthFund 2005 data, individuals deposited an average of $903 a year in their HSAs, most of it contributed by employers; 70.5 percent supplemented their employer’s contribution with their own funds, adding an average of $1,280 a year. Aetna also found that the average HSA balance at the end of 2005 was $847. Similarly, WellPoint’s Lumenos Consumer-Directed Health Plans found that among 66,819 employees enrolled after one year, 72.6 percent had an average of $940 in rollover funds in their HSAs; and of 25,659 employees enrolled after three years, 84.9 percent had an average of $1,382 in rollover funds.

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