Specializing Pays Off For Community Bank

While most banks are still new to the Health Savings Account (HSA) business, State Bank of Howards Grove, Wis., is one financial institution that has been succeeding at it for a while — so much so that its HSA funds today account for $100 million of the bank's $144 million in total bank deposits.

In fact, it was State Bank's HSA business that last year motivated Waterbury, Conn.-based Webster Financial Corp. to purchase its holding company, Eastern Wisconsin Bancorp.

State Bank, which operates under the name "HSA Bank," got into medical benefit accounts in 1997 when its CEO attended a conference featuring a discussion about Medical Savings Accounts (MSAs), an earlier tax-deferred product. After a quick check, the bank found there was little interest by other banks in that business, leaving State Bank with a unique opportunity, according to Kirk Hoewisch. Hoewisch is a former State Bank executive who is now president of HSA Bank under Webster Financial.

State Bank contacted insurance agents in the bank's primary market and identified a strong demand by insurance agents and carriers to find banks that would hold the funds for MSAs. The bank then purchased national insurance lists and began a telemarketing campaign to 3,500 insurance agents nationally.

Although State Bank also used the Internet to market its services, the real boost in accounts came when it made inroads with a couple of big national insurance carriers who were looking for bank partners, Hoewisch says. "We were able to sign with Aetna, Mutual of Omaha and others and they referred us to their agents." The latter included some independent agents that represent multiple carriers and were looking for banks to work with on HSAs.

With the advent of HSAs, State Bank has converted its MSA business into one based on HSAs. And while Hoewisch says the bank is dealing with more competition for HSA business than was the case with MSAs, he also sees more potential business: "We had been doubling our new account business each year, but this year I think we will see new deposits grow five times what they did in 2004."

The account balances in Webster Bank's new HSA business, which include State Bank, average about $1,500 to $2,000 today, says executive vice president Nat Brinn. Webster Bank had about 70,000 HSA accounts at the end of 2004.

To show the potential of its new star product, Webster Bank is offering a health care plan with an HSA as an option to its own employees. The plan has a $3,000 deductible and the bank puts $500 into an HSA to cover some of that cost. Employees are encouraged to save additional funds in the account to cover the remaining liability.

Employees who choose this plan pay nothing for their health insurance while employees who choose traditional low-deductible plans contribute to the cost through their paychecks. "We expect about 20% of our employees to sign up for the plan during the first year," Brinn says.

— Lauri Giesen