Main Street Focus


A Massachusetts community bank catches renewed demand in health care savings

By Don Sadler

The long-term effects of the Affordable Care Act on the U.S. health care system remain to be seen. But in the short term, it has already become apparent that health care reform has spurred growing interest in and popularity of health savings accounts, or HSAs.

One community bank in Massachusetts has moved quickly to take advantage of this trend. Avidia Bank, a $1.2 billion-asset community bank, has teamed up with a third-party technology provider to offer HSAs not just to consumers but also to businesses, employee benefits and insurance brokers, and third-party administrators of health care plans.

Avidia Bank, headquartered in Hudson, Mass., launched its HSA program four years ago, using what its Chief Operating Officer and Executive Vice President Robert Conery calls a “walk, run, sprint” strategy. He says the community bank started marketing HSAs to its retail customers for three years, and then it made a strategic decision to “sprint” by entering the bank-to-business vertical market about six months ago. The health care accounts are an integral part of the bank’s efforts to build many new and deeper banking relationships with small businesses.

The change in focus is what prompted Avidia Bank’s alliance with Alegeus Technologies LLC in Waltham, Mass., a company that provides the health administration software platform. The company also provides card processing technology so debit cards can be linked to HSAs, as well as the ability to have a core deposit system linked to an investment platform.

“Our partnership with Alegeus has enabled us to quickly scale into this vertical market,” Conery says. “We opened more than one thousand new HSAs last month.”

With the introduction of public health insurance exchanges, the Affordable Care Act is accelerating the adoption of HSAs by more businesses and their workers. Both employees and employers can contribute pre-tax funds to HSAs, and employers’ contributions are tax deductible.

HSAs must be linked to high-deductible heath care plans that cover costs for catastrophic medical expenses (the minimum annual deductible for 2014 is $1,250 for individuals and $2,500 for families). Individuals and families can use HSA funds to pay for routine medical costs not covered by the high-deductible plan.

From a banking standpoint, Conery compares the bank’s HSAs to a hybrid checking account or an IRA. The bank’s accounts feature debit cards and offer check-writing capabilities, Internet and mobile access, and mobile check-capture deposits. Customer fees and interest are similar to those associated with consumer savings and checking accounts.

“We look at HSAs as a stable source of core deposits,” Conery explains. “The acquisition costs for an HSA are much lower than for a consumer checking account, and a lower cost of funds translates to higher profitability for the bank.”

According to some experts in health-care financial services, one key to the long-term success of HSAs for banks will be the willingness of employees to contribute their new savings into HSAs that result from their ability to acquire lower-cost, high-deductible health care plans. Conery says that, so far, this is happening in Massachusetts: “This isn’t just middle-aged employees with more income, but also younger employees who are actively engaged in responsibly saving money in their HSAs.”

Instead of 1 or 2 percent of employees expected to open HSAs as some have forecast as a result of the Affordable Care Act, Conery says Avidia Bank is seeing closer to 10 percent employee adoption of HSAs at companies. “We see this percentage continuing to rise as the [Affordable Care Act] kicks in and both employers and employees start to look at health care costs differently.”

According to Conery, few community banks in the country have an HSA program that’s as well developed as Avidia Bank’s. “We want to establish and build long-term relationships with millennial employees who are opening HSAs,” he adds. “They will be entering many marketing moments in their lives, all of which present cross-selling opportunities for the bank.”

Don Sadler is a writer in Georgia.