The year was 1901 and someone in Howards Grove, Wisconsin, observed that the first automobile to appear in town was driven by a man from nearby Sheboygan. A century later, the town is making its mark on another new vehicle–which has the potential to revolutionize how one pays for medical treatment. It is the Health Savings Account (HSA) – widely available to most Americans in the growing money-for-medicine movement – and this Midwestern town’s bank is playing a prominent, if unlikely, role in advancing the radically free market-oriented idea.
Back in early 20th century Wisconsin, German settlers, farmers, and small businessmen found that they needed money to establish their businesses. They needed a bank. Howards Grove got one in 1912 when 37 individuals provided $10,000 to form the State Bank of Howards Grove, which opened for business on January 27, 1913. The first day’s deposits: $3,542.42.
In time, the bank – like the nation — had its troubles, including the Depression in the early 1930s, when State Bank of Howards Grove was forced to halt business. But the bank bounced back, re-opening less than a month later when a band of new investors stepped forward with more money.
That brand of can-do confidence also possessed a smart banker named Bradley Yocum, who grasped the profit potential for Medical Savings Accounts (MSAs, the predecessor to Health Savings Accounts), to act on his judgment that something closer to real capitalism is possible. Thanks to Yocum, today, the bank is among America’s largest custodians of Health Savings Accounts (HSAs). Now operating under the name HSA Bank, the small but feisty Howards Grove bank is a leader in free market medicine.
AFCM recently talked with HSA Bank President and Chief Executive Officer Kirk Hoewisch about the bank’s unique philosophy, its history, and its commitment to Health Savings Accounts (HSAs). Hoewisch also discussed HSA Bank’s September, 2004, merger with Webster Financial, which owns the largest independent bank in southern New England.
The 42-year-old Hoewisch joined State Bank of Howards Grove in 1996 as Vice President of Operations. Within a year, he was leading the initiative to offer MSAs to the bank’s customers. Hoewisch’s modest demeanor belies a fiercely independent and competitive drive, which has served the bank well; Hoewisch is primarily responsible for HSA Bank’s remarkable success in establishing a niche in market-driven medicine at a time when dominant intellectuals – and many bankers and businessmen – insisted that the future of health care is rooted in government intervention.
Developing a simple, easy-to-navigate Web site, combined with an intelligent sales strategy mobilizing a small but impenetrable grass-roots network of independent insurance agents, Hoewisch integrated new technology and rational business principles to establish major market share in America’s first major advance toward free choice in medicine in generations.
Please note that HSA Bank is a member of Americans for Free Choice in Medicine (AFCM).
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AFCM: Which principle defines HSA Bank?
KH: Philosophically, capitalism. Specifically, the idea of the entrepreneur.
AFCM: Your predecessor is responsible for introducing the MSA – now the HSA – to your customers. How did he do it?
KH: Bradley Yocum was brought on board [as president] in 1995 when banks were getting out of problem loans. He came with a strong background in commercial lending and he had switched the focus from mortgages to commercial loans. As a former auditor and controller, he knew where to cut costs. He also knew every other banker in the state so he used those resources. Within two years, he turned the bank around. One day [in 1997], he popped in to say he had attended a Medical Savings Accounts [MSAs are the precursor to HSAs] seminar. He said that most of the attendees had left by lunch and he thought that would be a good sign [that the bank could dominate the market]. He asked whether our software could handle MSAs. I had read about Medical Savings Accounts in the Wall Street Journal and I thought he was talking about offering them to our staff. He said he wanted to offer HSAs to our customers.
AFCM: What did you think of HSAs in principle?
KH: The concept made sense. I liked the idea of high-deductible health insurance, the idea of paying your own money for services and shopping for price and quality. This idea of putting the money back in the consumer’s hands made sense to me. I’m a free market capitalist and I believe the government basically should stay out of our lives. They can handle the military and some other things. But that’s about it.
AFCM: Who are the bank’s customers?
KH: One third mortgage, home equity and personal loans, one third commercial and real estate loans and one third agriculture loans. From a deposit standpoint, out of $150 million in deposits, $42 million is non-Health Savings Account and $108 million are MSA or HSA deposits, not including brokerage accounts, which have $20 million in deposits. HSA Bank’s total Health Savings Account assets are $128 million. 40 percent of HSA Bank customers are covered as an individual, with 60 percent in group health insurance. The average group is 15 employees per group, though that doesn’t really tell the size of the employer, because not every employee enrolls in the group HSA plan.
AFCM: How do employers respond to HSA Bank’s products?
KH: It’s difficult for me to say because we’re not the agent or the broker trying to sell the concept, so what we see is all positive, though I’m not hearing negative [response] from agents and brokers. Large employers are hesitant [about offering Health Savings Accounts] but most of them are offering multiple options [of health care benefits to employees]. A third of large employers seem to like HSAs right away. The negative response comes from employees – those who used to pay 25 bucks a month, with their employers picking up most of the tab. I have friends who hate the idea [of employer-sponsored HSAs]. The initial reaction is a concern that they’ll end up paying more for health insurance. I explain that the employer is allowed to fund the Health Savings Account and I ask: ‘How many times do you go the doctor in a year?’ I do the math, I show them and I explain that there are restrictions with managed care plans that there aren’t with HSA-compatible health insurance, which generally allows the individual to visit any doctor or hospital. But there is also this entrenched notion among some people that health care is a right and that health insurance ought to be free to them, paid by the employer.
AFCM: How does HSA Bank set interest rates on Health Savings Accounts?
KH: Rates are indexed to the prime rate. Our daily interaction with agents and customers indicates that we have the right mix of fees and rates. We aim to offer the most complete package. We have the most knowledgeable customer service agents. Our sole mission is Health Savings Accounts, as our name suggests, and we don’t do anything else. We have 90 employees completely devoted to HSAs, a product we’ve offered since 1997.
AFCM: Why did you decide to offer brokerage accounts?
KH: Agents requested it. Once we offered brokerage accounts, our business took off.
AFCM: Does HSA Bank offer online account management?
KH: Yes. We offer an on-demand transfer of funds to their bank. Digital images of checks are available on the Web, too, and, in the future, we may offer analysis of the customer’s Health Savings Account using charts and graphs, though we have to comply with government privacy regulations. We’re also working on adding easier enrollment options and the customer will be able to go as far back in his or her account history as when the account was opened. A Web site redesign is already in process and it’s just a matter of time. The HSA debit card already shows how a customer’s money is used.
AFCM: What type of training do you provide?
KH: We train workers on the concept of the Health Savings Account first and we have hired a woman with top training standards who worked for AT&T. It’s an ongoing education. Also, our own staff will soon have high-deductible insurance – HSA Bank will contribute $ 500 to each employee’s Health Savings Account, so HSA Bank employees will know the benefits of the products first-hand.
AFCM: Will Mr. Yocum’s role be eliminated?
KH: Yes. He is ready to retire.
AFCM: What’s the HSA Bank marketing philosophy?
KH: Neutrality. We don’t have insurance subsidiaries. There’s no conflict of interest. We don’t plan to get into the insurance business. We’ll just do a great job with your Health Savings Account. Also, we’re hiring people who like the excitement of coming in on the ground floor of something huge.
AFCM: Why do you suppose more banks haven’t created HSA products?
KH: They didn’t have the volume of business with the Medical Savings Account and there were too many government restrictions. They backed out of the market due to lack of interest.
AFCM: Does HSA Bank offer its products in all 50 states?
KH: Yes. Going by a map, the Midwest is especially strong for us and we have many customers in the southeastern United States and in Texas. Most customers are male, but when it comes to using the account, it’s mostly women. The average customer’s age is in the late forties, though many of our young customers were previously uninsured. I’ve done presentations at machine shops and the young guys really like the concept. Professionally, we have software companies and many small businesses – including people who work at taverns, dairy and wheat farms. Other customers are lawyers and doctors, CPAs, dentists.
AFCM: Do you aim to compete with Assurant Health, (formerly Fortis Health), the nation’s top health insurer for HSAs?
KH: We do have a number of Fortis agents [who sell HSAs for HSA Bank] and we receive a good chunk of business from their agents. Before United Healthcare purchased them, Golden Rule’s agents referred business to us. So, we have good relations with insurance agents and we welcome new partnerships while we continue to compete.
AFCM: You were chiefly responsible for using a strategy of getting insurance agents excited about free market ideas, developing the Web site and achieving success in a niche market. How did you gain new customers?
KH: Through word of mouth. It was awesome. Back in 1998, without any real marketing, we bought 3,800 names of agents and we personally called them. Of those, only 400 were interested in receiving information. Out of that database, we now have over 12,000 agents referring business to us. That was my initiative. We started revenue sharing with the agents and that helped. Not all of them wanted it and they could pass the savings along to the customer. Meanwhile, we provided them with free marketing – through our brochures, which we would distribute at trade shows, such as the National Association of Alternative Benefits Consultants. There were some agents in that original 400 who would call us back later and say enrolling certain customers in MSA-compatible health insurance prevented those customers from terminating business.
AFCM: What was the biggest challenge in getting national customers?
KH: Name recognition. Our name is neutral — our focus is HSAs. You know what you’re going to get. Some [health insurance] carriers don’t want to have their brand diluted by, say, teaming with a major bank [to offer the companion Health Savings Account to the carrier’s insurance policy]. We aim to have a brand following so that you know what you’re getting when you open an account. Look for us at health conferences, in talk radio interviews and in published advertisements.
AFCM: Did Webster Financial approach HSA Bank for a merger or vice versa?
KH: They approached us. We had already grown and we had reached the stage that banks were bidding [to buy HSA Bank]. During the process of sending information packets, they called and wanted to know how they could partner with us. Mr. Yocum said the timing was good and that we were for sale and he asked if they were interested. [Webster Financial] said they had been looking and we sent them information.
AFCM: How has being bought by Webster Financial affected HSA Bank?
KH: We’re still HSA Bank. We do not share client insurance information. We have our own legal and marketing staff — so we’re pretty autonomous. It’s our niche and they’re going to let us run it.
AFCM: How do banking regulations affect business?
KH: There are regulations on banking from A to Z. For example, regulations govern the float and return of checks, whether a deposit is a government check, whether the depositor is a customer or a non-customer, whether the deposit is made by mail or through an Automated Teller Machine (ATM). It’s very complex.
AFCM: Does HSA Bank accept government grants?
KH: No. Asking for government help is not my philosophy.
