Although CDHPs now cover just 7 percent of the privately insured population in the United States, that number has doubled in each of the three years the plans have been in existence. If the percentage caps at 25 percent, as some observers suggest, the total amount of money in HSAs/HRAs could amount to as much as $14 billion (25 percent of the privately insured market of roughly 43 million accounts, which can cover two or more individuals, multiplied by $1,000). Extend that calculation over the 40 years of an individual’s employment, factor in the growth of HSAs/HRAs, and you end up with an even more staggering sum of money.
The imperatives for both the financial-services industry and the health-care industry to address the health–wealth gap will be overwhelming. Employers are clamoring for help; corporate executives tell us that covering health-care costs is a paramount concern. For good reason: Goldman Sachs recently found that retiree health plans at U.S. companies among the S&P 500 are underfunded by almost $325 billion, compared with a shortfall of $80 billion in defined-benefit pension plans. Short of a significant change in public policy, it will be virtually impossible for the government to fill that gap.
The costs of sitting out the health–wealth convergence are high. We hypothesize that as much as 10 percent of a bank’s net income could be at risk as both corporate and individual customers start seeking a one-stop shop. That could translate to a drop of $1 billion or more in profits for a major bank. Increasingly, the edge will belong to the institution that can take on benefit plan design and administration, risk assumption, bridge financing, and other matters related to benefits, and integrate those with a broader range of private client and treasury management services.
“Convergence is where I believe the industry is going,” says José Becquer, executive vice president of the health benefit services group at Wells Fargo. “I think it could have as much potential as 401(k)s.”
Health-care players will have to respond to the same set of dynamics to defend their core business and answer to the needs of the changing market. If they do not acknowledge the shift, the risks are considerable. Among the conceivable scenarios: Health plans could lose employers to other plans, along with an average of more than $4,000 in annual premiums per individual and more than $11,000 per family; they could lose the enrollees most likely to choose HDHPs and HSAs/HRAs, who tend to be younger and healthier. The health plans might then find themselves saddled with a disproportionate number of members with a greater need for health-care services; they could be reduced over time to manufacturing indemnity/catastrophic coverage policies, which will increasingly become commodities. Or the market could move to ever-greater transparency with providers listing prices, obviating the health plans’ proprietary network discounts.
For many health-care and financial-services organizations, failure to meet the evolving needs of consumers and employers could provoke a fundamental transformation of core business models. For those players, it will be a question not of whether to get into the health–wealth arena, but of how and when.
Reframing Personal Finance
The health–wealth intersection is already taking shape. Players from each sector are experimenting with offerings that cross the boundary between the two, such as reverse mortgages to finance nursing-home costs and arrangements that let individuals tap into their life insurance policies to cover medical costs. But the new health–wealth business will evolve and change shape for at least the next couple of decades, as the retail health-care market coalesces and consumers take on more responsibility for their medical needs.