VC and PE investments in HSA and CDH administrators and TPAs.

Mitigating investment risk and maximizing growth.

The benefits accounts market, namely HSAs (Health Savings Accounts), FSAs (Flexible Spending Accounts), and HRAs (Health Reimbursement Arrangements) has been growing and getting plenty of attention in the recent years, driven primarily due to the growth in HSAs.  According to Devenir, one of the largest HSA investment solutions providers, there are now over 30 million Health Savings Accounts; that number is expected to double in the next 3-5 years. The majority of the funds in these accounts are held in bank deposit accounts, although the amount of HSA funds being invested is growing rapidly.  This growth has attracted investments from private equity, as well as stimulated M&A activity within the industry, creating consolidation and further opportunities in the market. Additionally, in concert with the boom in fintech investment, there is a significant amount of venture capital and private equity funding of startups trying to take advantage of these opportunities while also closing customer needs not met by current providers.

There is a significant amount of market consolidation among established HSA providers – 

Notable acquisitions:  

Optum Bank acquiring: the ConnectYourCare benefit accounts platform, and HSA books of business from Wells Fargo, Huntington Bank, and Fifth-Third Bank.

HealthEquity acquiring:  WageWorks, and HSA books of business from Further (Minnesota Life), Fifth Third Bank and The Bancorp Bank. 

HSA Bank acquiring HSA books of business from JPM Chase’s HSAs, State Farm HSAs

Wex Health acquiring Discovery Benefits, and then the HSA assets from Healthcare Bank

Voya acquiring Benefit Strategies

Private Equity Investments:

Alegeus, by Vista Equity Partners.

Maestro Health, by AXA.

Empyrean by Securian Financial Group.

BRi (Benefit Resource Inc), by CIP Capital.

Startup activity in the last 3-5 years:

Lively, which has built its own platform and recently announced investment by and partnership with BMO Harris, reaching $500Million in HSA assets.  Lively has disrupted the market with a zero-fee retail product and digital marketing, and has set up many other partnerships for distribution.

Bend Financial, which has built its own platform and announced partnerships with Tufts Health Plan, Paragon Benefits, Elements Credit Union and the California Realtors Association, among others.

Starship, which has built a Robo Advisor for their HSA, focuses on the gig economy market and has arrangements with Uber, Postmates, Instacart, Upwork and Wonolo.

First Dollar HSA, which is building its own platform and combining a fee free HSA with healthcare savings.

Benepass, a benefits administrator which is building its platform to combine pre-tax benefits and company funded stipends on a single card + mobile app.

This type of consolidation brings growth and new product features to the acquirers and takes advantage of economies of scale; however, it also comes with its challenges, such as: conversion time and costs which can lead to loss of business, cultural assimilation, technology integration and development challenges, and overall loss of focus during the transition period.  The growing pains of account and/or technology acquisition can be mitigated with a well-planned out strategy, which should include: integration needs and planning, timelines for communication with distribution channels, employers and account holders in order to minimize apprehension, confusion and disruption, and advance planning for integrating teams and fitting the activity within the strategic initiatives of the company. More communication with stakeholders and customers, and a rapid but organized transition will help to minimize the inevitable disruptions in service.  A common source of ongoing disruption is trying to make old processes from the acquired company work within the system that will prevail, unless the plan is to have the entire company move to it.  Usually, making a change just so a specific feature matches the acquired business may not result in an optimal outcome as it will likely create other problems.

For startups in the Benefits space, there are many opportunities arising from the space created by M&A and consolidation; the current startup environment seems to be directed towards filling the gaps, but are directed towards more specific market segmentation and product differentiation.  In order to find the spaces in the market one should have a really good understanding of the specific benefit accounts market dynamics, what the clients must have and value, timing of sales efforts and sales cycles, proper growth expectations and strategies, and timing product development and marketing with growth goals, parallel to fund raise rounds.  It is critical for these organizations to have the right resources to close gaps in market understanding and experience, so they can focus on their differentiation and mission.  A challenge for many startups is distribution timing and size, as many investors and founders are used to scaling businesses fast once they hit a Series B, but the benefits market is by and large, fairly mature, cyclical and has many challenges, so ensuring that investors and startups have the right expectations for growth for each funding round, as well as proper sales and marketing strategies, is critical.

For startups, engaging market and operational expertise experience can shorten time to market by a magnitude of months to years, given the annual sales cycle in the benefits space, and ensure that product development goals are aligned with sales goals and fundraising rounds.  Our partner clients outsource many of these functions to our team, while they focus on building their core differentiators.

Time to market is a big deal in this space, with its normal annual cycle and many new entrants looming, protect your investments by adding experienced partners to your team.

At HSA Consulting Services, we help established HSA administrators and TPAs with finding acquisition targets, executing them, planning the integration and transfer of the business, updating strategic plans, and sales and marketing work.  We also have been providing extensive legal and compliance expertise, contract reviews and negotiation, and have worked with clients to assist with obtaining non-bank HSA trustee custodian status and exploring alternatives to increase revenue while maintaining acceptable risk levels. We have also trained and certified many customer service, client account managers, business operations, and sales persons as certified “HSA Experts” which reduces customer service issue resolution and operational re-work and continue to offer this training in various formats, including live seminars and online modules. 

Our team has extensive market experience, with over 20 years each in the space, with roles ranging from Operations, Technology, Strategy, Sales and Marketing, Legal and Compliance, and even Government Affairs.  We help clients with product roadmaps, operational efficiency, market and competitive intel, non-bank Trustee process consulting, TPA registration, Legal and Compliance work, Strategy, sales and marketing consulting.  Our work helps partners de-risk investments by getting expert and experienced opinion and feedback, which shortens time to market, reduces execution errors and increases overall success and growth.

 For more information, contact any of us here: