As the explosive growth of health savings accounts continues, third-party administrators are considering whether it's worth it to offer HSA management services, according to a DataPath white paper, “How TPAs Can Overcome Potential Pitfalls to Deliver a Unified HSA Experience and Maximize Earnings.”

Since 2005, the number of HSA accounts has more than tripled, and is projected to reach 27.5 million accounts by the end of 2019, according to the 2017 Year-End HSA Market Statistics & Trends Executive Summary, Devenir Research. Still, many TPAs remain cautious about offering HSA management services for a variety of reasons, including whether or not the endeavor can be profitable.

HSA administration costs about $1.75 per account on average for small to mid-size TPAs, according to a recent DataPath study.

“However, the average cost to administer HSAs decreases as the accounts grow in volume — the more accounts a TPA administers, the more profitable the service,” the authors write.

DataPath's study also found that HSA administration is more scalable than the management of flexible savings accounts, as HSA administrators can dedicate fewer resources such personnel and hardware. It takes about 20 hours per week to manage 5,000 accounts, so a TPA could manage between 5,000 to 10,000 HSAs with only one dedicated account manager, adding one full-time account manager per every 10,000 accounts.

The service could also be profitable if TPAs charge a fee for it, further justified because many HSA providers charge account maintenance fees. If a TPA charged, say, a $4 fee, with actual costs being $1.75 per account, the TPA could see a gross margin of 56 percent.

TPAs considering HSA management services are also concerned about competing with banks and rival HSA providers, and “providing superior customer service without sacrificing other business needs.”

Potential barriers to market entry is also a top concern, and the challenges include finding revenue opportunities within the market, funding the incremental administrative work involved and identifying and working with a custodial banker.

TPAs could overcome these obstacles by utilizing technology solutions, though relying on a “patchwork” of banking and investing partnerships can increase costs and “support headaches,” according to the white paper. It could be more profitable to use a single platform that offers HSA administration, custodial banking and integrated investments, which could also provide a better overall experience for each party involved – TPAs, employers and the HSA participants themselves.

“HSA participants have a single point of contact for all their HSA-related needs, from banking, card services, investments and administration,” the authors write. “The 'one-stop shop' for HSA management provides a seamless and more satisfactory experience.”

Instant Insights /

Are HSAs worth the effort for TPAs?

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