Health Savings Accounts (HSAs) are the latest addition to the field of consumer directed health plans. This report provides an overview of the HSA, its penetration in the marketplace (including who is enrolling in the product) and where future opportunities may lie.

Consumer-driven health plans are designed to counter the growth in medical costs by giving consumers financial incentives along with the control to decide where and how to make their healthcare expenditures. The shift toward consumer-driven health care will likely create significant opportunities for insurance companies, banks, financial services firms and financial advisors. This report addresses these opportunities, including:

• Likely candidates to enroll in HSAs

• Educational programs that will enhance HSA enrollment

• Recent product developments in the competitive space

• Growth potential in the future

HSAs essentially operate as an IRA for healthcare. They are a hybrid product—a combination of insurance along with a tax-deferred investment account that allows for tax-free withdrawals to pay for medical expenses. In some ways, the product is also similar to whole life insurance—it includes both a protection component as well as the opportunity to build savings through a separate savings account.

Currently, HSAs are distributed by insurers, custodians/trustees, and record keepers, but more financial firms are becoming involved through alliances with insurance companies and administrators. The savings account component of the HSA is particularly up for grabs, with unexplored opportunities to help consumers make sound investments to build their accounts for future needs.

HSAs have several objectives:

• To encourage people to set money aside for healthcare expenses
• To provide financial incentives for people to make prudent healthcare expenditures
• To provide a vehicle for people to choose and pay for healthcare services on their own initiative, without limitations imposed by insurers or employers
• To create competition among providers and bring down the cost of health care, as informed consumers negotiate for more affordable services

HSAs are creating interest among larger employers already offering other types of consumer directed health plans or other high deductible insurance. HSAs also appeal to smaller employers who cannot afford to make health care benefits available to their employees with traditional plans. The U.S. Treasury Department estimates that 25 million to 30 million Americans will use HSAs as part of their insurance plans by 2010. For employers, HSAs offer a way to dramatically reduce health insurance premiums for their employees; as a result, it is likely that the number and types of companies offering HSAs and qualifying high deductible insurance plans will continue growing.