Big Competition Has Entered the HSA Market: Here are 4 Ways to Compete on Value
Published on February 24th, 2020
The consumer-directed health (CDH) landscape continues to change, with new and different providers entering the market. Some of these new entrants are startups focused on a piece of the puzzle, while others bring their powerful reputation, plentiful resources and enticingly low prices. All these factors have the potential to make waves and pose significant challenges to existing providers, even those that have owned the CDH experience for years. In this article, we discuss those competitors looking to price-out the market in the health savings account (HSA) space, and how third-party administrators (TPAs) and health plans can respond. The good news: They have a lot to offer that goes well beyond price. With some strategic effort, they can differentiate their services on a much deeper and more valuable level.
Understanding the competition
TPAs and health plans should consider the ambitions and revenue sources of new competitors. Some new players – particularly those branching out from the retirement account space – earn most of their revenue on deposits tied to HSAs and 401(k)s; therefore, investors, affluent consumers, and those with high-deposit balances are ideal customers.
But that type of customer makes up only a small percentage of the HSA participant population. In fact, independent research from the Employee Benefit Research Institute (EBRI) finds that just 5 percent of HSA participants enroll in investments, and Alegeus sees more than half of the consumers on its platform spending their full account balance year over year. As such, most consumers could benefit from additional savings vehicles like flexible spending accounts (FSAs), health reimbursement accounts (HRAs) or transit accounts. AUM-driven firms, however, have little incentive to offer these notional accounts and could instead push for HSA contributions and engagement that doesn’t necessarily align with a consumer’s best interests.
Price vs. value
Before diving into specific value-add strategies, TPAs and health plans can benefit from reflecting on the difference between price and value. While price is the actual cost of a service, value is the benefit delivered by that service. Although some companies may seek out cost-savings, many others desire a service that delivers the greatest value, even if it comes with a higher price.
In the HSA world, value can look like a lot of things (which we’ll talk about below). But in the most general terms, value lies in the ability to deliver on a broader CDH strategy – one that provides employers with the best benefit plans so that more consumers can afford and save for healthcare. The Forbes article 3 Ways to Win By Competing on Quality, Not Price offers this advice: “Be transparent about your company’s mission and weave it into everything you do, internally and externally. Invite your customers to come alongside you as you make the world a better place through your business, and provide a wow-making service to your customers that adds immense value to their lives in the meantime. Your customers will notice. And that’s part of what will keep them coming back to you.”
When competing in the HSA price war, providers must tap into and believe in the value of CDH. This means discussing with employers and brokers the benefits to consumers and demonstrating how their services deliver those benefits. With all this in mind, here are four ways TPAs and health plans can differentiate their tax-advantaged account offerings on value.
1. Re-frame price vs. value
Although “zero-fee accounts” is eye-catching for brokers and employers, it’s worth looking at the bigger picture. Zero-fee means clients can open an account without paying administration fees. Saving tens of thousands of dollars in these fees (depending on the number of participants) will likely draw in employers that prioritize cutting costs; however, TPAs and health plans that offer an HSA as part of their complete CDH strategy can deliver savings – to both employers and employees – that go well beyond administration fees.
The National Business Group on Health predicts that large employers will spend on average $15,375 per employee in health insurance this year. Of that $15,375, 20 to 40 percent (or $3,075 to $6,150) is addressable spend – potential savings that can be obtained through reduced employer premiums, reduced FICA tax liability and strategic consumer guidance. If an employer reaches even 20 percent of this addressable spend, it could save approximately $769 per employee, per year. This not only leads to greater savings than a price cut up front, but also delivers more strategic value.
2. Assist with better plan design
A provider that can sit down with an employer and work out the best plan options for its employees will stand out among the crowd. The better-suited the plan, the greater the employee enrollment and engagement. For example, a TPA could work with an employer to design a HDHP that includes employer contributions to an HSA, which is the number-one strategy to increase account adoption during open enrollment. Without input from this TPA, an employer may overlook the powerful option of assisting with HSA contributions.
3. Offer HR training and employee communications
Human resources professionals, although familiar with healthcare benefits in general, may need guidance on HSA-eligible plans specifically. The 2017 Broker & Employer Research Report found that even financially savvier groups struggle with some concepts related to CDH. Roughly one-third of brokers rated their aptitude as average or below average in encouraging employers to choose a HDHP with HSA over a traditional plan and implementing best practices for consumer adoption.
This confusion over HSAs can result in consumers mismanaging HDHPs. This could mean a failure to make HSA contributions and spend those dollars on medical care, which then leads to increased out-of-pocket spending. In fact, the 2018 Consumer Health & Financial Fluency Report shows that consumers could save an annual $85B if they used pre-tax dollars to pay for eligible out-of-pocket expenses. With increased out-of-pocket spending, HDHPs become unpopular, even if the plan was designed to save consumers more money than a traditional plan. TPAs and health plans can offer tutorials and best-practice guides to arm employers with the knowledge to answer consumer questions and ensure plan value is properly positioned alongside the health plan. TPAs can also help by providing employers with marketing materials that educate consumers directly.
When HR professionals can help consumers get the most value for their healthcare dollar – no matter a consumer’s financial circumstances – they achieve a goal that’s fundamental to their job: happy, healthy and empowered employees.
4. Embrace next-generation technology
Consumers’ needs and desires continue to change rapidly, especially as Millennials begin to dominate the workforce and Gen Z enters it. TPAs and health plans can enhance their partnership with employers through the delivery of tools that acknowledge consumers’ reality and meets them where they are. The soon-to-be-launched Alegeus Smart Account Mobile App does just that, with tailored, AI-driven insights that guide individual consumers to get the most value from each healthcare dollar spent or saved. Learn more about Smart Account.
Alegeus is ready to help you compete on strategic value in a changing market. Contact us today.