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Big players dropping HSA business despite growth potential

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Some big-name financial institutions recently exited the health savings account business despite the market's steady growth. A main reason: The prospects and potential profits aren't big enough compared with their other businesses.

The latest to leave is Wells Fargo & Co., which confirmed in late May it is selling its HSA business.

U.S. Bancorp, Huntington Bancshares Inc., M&T Bank Corp. and The Bancorp Inc., as well as insurer Assurant Inc., all sold their HSA management businesses and/or their HSA accounts within the past 12 months. JPMorgan Chase & Co. sold its HSA business in early 2015.

As Pensions & Investments reported May 16, HSA deposit assets and the investment assets within HSAs have grown consistently — although their sizes are small compared with retirement accounts such as 401(k) plans and individual retirement accounts.

Large financial institutions with many lines of business are getting out of HSAs to concentrate on bigger and more profitable businesses, said Roy Ramthun, president of HSA Consulting Services, Silver Spring, Maryland.

“They have other priorities, and this (HSA management) is too small a piece,” Mr. Ramthun said. HSA management requires investments in technology that executives at large institutions might decide are not worth the effort given their expected return on investment.

“The more the HSA market matures, the more consolidation you will see,” said Eric Remjeske, president of Devenir Group L.L.C., a Minneapolis-based investment adviser and consultant in the HSA business.

Total HSA assets reached $30.2 billion in 2015, about triple the amount in 2009, said the latest annual survey by Devenir. Investments accounted for $4.2 billion, or 14% of last year's total, according to the survey based on the 100 largest HSA managers.

Pursued by giants

The potential for growth in HSA assets has prompted giants such as Fidelity Investments, Boston, and Bank of America Merrill Lynch, New York, to continue pursuing their HSA management strategies.

However, for the dropouts — at least those willing to comment — HSAs no longer fit their long-term strategies.

“Wells Fargo periodically reviews its businesses and determined that the sale of (our) Health Benefit Services to an industry leader would provide our customers with a better platform for the future,” the company said in a statement.

“Health Benefit Services has been a well-managed business for our company,” the Wells Fargo statement continued. “This decision was not an easy one to make. However, we believe that it allows us to focus on businesses that are more core to Wells Fargo's future.”

Wells Fargo is selling its HSA business to Optum Bank Inc., part of United Health Group Inc., Minnetonka, Minnesota. A May 31 notice on the Optum website welcomed Wells Fargo HSA account holders, noting the transaction is awaiting regulatory approval.

Representatives of Optum and Wells Fargo didn't provide transaction details, the number of HSA participants or the HSA assets that Optum was acquiring. Sources estimated Wells Fargo's HSA business covers 650,000 participants and $1.9 billion in assets.

“By and large, the acquirers' (investment) offerings tend to be broader than those of the sellers,” said Devenir's Mr. Remjeske, referring to the recent HSA deals.

Each of the buyers has an array of open architecture mutual fund choices for their HSA account holders. Some also offer self-directed brokerage accounts.

According to Optum's website, HSA participants can choose among 26 mutual funds. The mutual funds are offered through Devenir.

Optum has been an active buyer. In December 2015, it bought the HSA deposits of U.S. Bancorp, Minneapolis. Optum spokeswoman Lauren Mihajlov declined to provide any information.

Not wanted

Richard Davis, chairman, CEO and president of U.S. Bancorp, told securities analysts Jan. 15 that HSA management wasn't part of his long-term strategy. “We are in every business line that we're in that we want,” according to a transcript of the company's quarterly earnings call.

“We're not in anything we don't want to be in,” Mr. Davis said. “We don't covet anything we don't have. We just want to be better at what we're doing and do it better, deeper, wherever we are.”

Dana Ripley, a U.S. Bancorp spokesman, declined to offer additional comment.

In June 2015, Optum acquired the HSA deposits of Huntington Bancshares. Optum's Ms. Mihajlov didn't provide any information. William Eiler, a spokesman for Huntington, declined to discuss the HSA business or the reason for selling it.

JPMorgan sold its HSA business in January 2015 to Webster Financial Corp., Waterbury, Connecticut, whose HSA Bank unit, based in Sheboygan, Wisconsin, administers the accounts. The transfer of all accounts was completed March 1, 2016, said Bob Guenther, a Webster Financial spokesman.

Mr. Guenther said HSA Bank administers 2 million HSA accounts, with $4.08 billion in deposit assets and $728 million in investments. The JPMorgan business contributed about 700,000 accounts, $1.3 billion in deposits and $175 million in investments, he said. Kristen Chambers, a JPMorgan spokeswoman, declined to comment.

The HSA Bank website said participants can choose from 19 mutual funds, offered through Devenir, and a self-directed brokerage account from TD Ameritrade.

Another recent buyer of HSA accounts from banks is HealthEquity Inc., Draper, Utah. HealthEquity is an HSA custodian firm with 2.2 million members as of April 30, up 51% from 12 months earlier.

The company's HSA assets under management rose to $4.1 billion by April 30, an increase of 61% from a year earlier. The AUM includes $488 million in investments, up 41%.

HealthEquity offers 41 mutual funds, which are selected by HealthEquity Advisors L.L.C., its investment subsidiary, the company website said.

HealthEquity also offers a group of 26 “optional choice” mutual funds for additional fees.

“You need specialized capabilities in function and distribution” to manage HSA accounts profitably and effectively, said Jon Kessler, president and CEO of HealthEquity. Without a willingness to invest in technology and distribution, an HSA account manager might choose to exit the business, he added.

HealthEquity bought about 35,000 HSA accounts with $63 million in assets from M&T Bank Inc., Buffalo. The deal was announced in January and closed in March, Mr. Kessler said.

Chet Bridger, an M&T spokesman, declined to comment.

Closed its purchase

HealthEquity in December 2015 closed its purchase of about 160,000 HSA accounts representing about $390 million in deposits from The Bancorp Inc., Wilmington, Delaware, Mr. Kessler said.

John Chrystal said the HSA sale “was a strategic decision that was accretive to our earnings and capital,” according to a transcript of a Feb. 1 earnings conference call with analysts. At the time of the conference call, Mr. Chrystal was interim CEO of The Bancorp; he remains a director.

In another recent HSA deal, SelectAccount, St. Paul, Minnesota, acquired HSA assets and other medical-account assets from Assurant Inc., a New York-based insurance company. SelectAccount administers HSAs and other medical spending accounts.

Assurant wanted “to sharpen our focus on the housing and lifestyle markets,” and the HSA deal was part of its effort to “wind down our health insurance business,' said Alan Colberg, the company's CEO and president, in a March 15 news release.

In an interview, David Cantu, chief marketing officer of SelectAccount, said the deal closed April 1, enabling his company to acquire 10,000 HSA accounts with $59.8 million in assets.

SelectAccount now has more than 250,000 HSA accounts with $700 million in deposit assets and $105 million in investment assets. Its HSA program offers 26 mutual funds; Devenir is the investment adviser. Participants can invest in a self-directed brokerage account through Charles Schwab & Co.

SelectAccount is the name used by MII Life Inc., which is owned by the privately held Aware Integrated Inc., St. Paul, a diversified health services company.

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.