In this post I’ll highlight individual companies with health savings account (HSA) businesses that are publicly traded. Before I get into any discussion relating to individual securities let me be completely transparent about my past and current investments in HSA-related publicly traded companies. My love affair with HSAs began with an investment in HealthEquity (HQY) back in February 22, 2016 when I bought HQY shares at $19.53. In the ensuing months, HQY ran up a bit and I sold all my shares with the belief that HQY was overvalued. HQY currently trades much higher, needless to say I sold way too early! Later that year I also bought Webster Financial Corporation (WBS) shares, the parent company of HSA Bank, and in 2017 UMB Bank shares, both of which I still hold. Not all of my investments in the aforementioned companies have been profitable, in fact I made a huge mistake selling HQY, but in the process I’ve learned an awful lot about the HSA business reading through annual reports, conference call transcripts, and earnings releases.
The materials mentioned above are great to get to know a business, but If you’re interested in learning what makes a great business and how to value companies I suggest you read Warren Buffets Letters to Shareholders and Markel’s Annual Reports. That said, the investment managers at these two outfits would probably advise the lay person to invest in passive index funds. In fact, the majority of my portfolio is invested in index funds. I found books by David Swensen, Larry Swedroe and Andrew Hallam to be exceptionally informative on the topic of index investing.
Let’s jump right into it. Here are five publicly traded companies that have HSA-related businesses.
Webster Financial Corporation (WBS)
Webster Financial Corporation (WBS) is a regional bank and financial holding company serving businesses and consumers in the Northeast. The Company's segments include Commercial Banking, Community Banking, Private Banking, and HSA Bank. HSA Bank, a division of its subsidiary, Webster Bank, offers health savings accounts, health reimbursement accounts, flexible spending accounts, and other financial solutions.
Webster’s strategy is to get cheap deposits and lend them out to businesses in commercial real estate and non-cyclical businesses with stable recurring cash flows.
HSA Bank also receives revenues from account related fees, interchange fees (debit cards), and custodial fees (investments).
HSA Bank holds approximately 13% market share in the sector. They service 2.7 million health savings accounts, which are comprised of $5.7 billion in low-cost, long duration deposits and 1.5 billion in linked investment balances.
In its most recent quarter, total deposits grew 4% from a year ago, health savings accounts represented more than 80% of the deposit growth and were unchanged in cost from a year ago, at 20 basis points.
Webster has experienced 37 consecutive quarters of year-over-year revenue growth.
Webster has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.76%. Webster’s current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month earnings as dividend.
HealthEquity (HQY), Inc. is a provider of a range of solutions for managing healthcare accounts (Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs) for health plans, insurance companies and third-party administrators. The firm primarily partners with health plans and employers and serves as the custodian of its customers’ health savings accounts (HSAs). HealthEquity also engages in reimbursement arrangements and offers healthcare incentives to its members. In addition, the company provides investment advisory services to customers whose account balances exceed a certain threshold.
HealthEquity is a pure play on HSA’s. Their main business is HSAs.
Revenues come from account related fees, interchange fees (debit cards), and custodial fees (investments).
As of January 2019 the number of HealthEquity health plan administrator network partners reached 140, up from 124 last year. HealthEquity likes to develop preferred relationship agreements with insurance companies like Blue Cross Blue Shield, Health Plan Alliance, and Anthem to service their HSAs.
The number of employers served by HealthEquity increased to approximately 45,000 up from approximately 40,000 last year.
The total number of HSAs for which it serves as a non-bank custodian ("HSA Members") as of January 31, 2019 was 4.0 million, an increase of 17%, from 3.4 million as of January 31, 2018.
Total custodial assets held by HSA Members as of January 31, 2019 was $8.1 billion, an increase of 19% from $6.8 billion a year earlier.
UMB Financial Corporation (UMBF)
UMB Financial Corp, or UMBF, is a financial services holding company offering a suite of banking, asset-management, and health spending solutions. Its customer base includes commercial, institutional, and personal customers across the United States. The company’s banking subsidiaries own and operate banking and wealth-management centers mostly throughout the Midwest and Southwest regions of the U.S. UMB HealthCare Services is a leading provider of healthcare payment solutions including health savings accounts (HSAs), healthcare spending accounts and payments technology.
UMB HealthCare Services is a highly profitable subsidiary of UMBF. In the latest quarter, the HealthCare Services division was responsible for approximately a quarter of the parent company’s income from continuing operations.
The HSA business comprises approximately 12.5% of UMBF’s total deposits.
UMB HealthCare Services holds 5% market share in the sector with 1.28 million accounts and 2.8 billion in assets.
UMBF has increased its dividend 26 years in a row. For the last 12 months of earnings, the dividend payout ratio was 29%
UnitedHealth Group Incorporated (UNH)
UnitedHealth has consistently been among the top performing health insurers in the U.S. With about 50 million covered lives and 1.2 billion annually processed prescription claims, UnitedHealth is one of the largest Managed Care Organizations and Pharmacy Benefit Managers in the United States. The firm provides health insurance services to its members through fully insured and fee-based plans for every major insurance market--individual, employer, and government sponsored. The firm is also a major player within the healthcare services space as it provides patient population management, clinical services, admin services, patient management, other back-office services to providers and smaller/midsize health insurers through its Optum segment. This segment will likely drive a significant portion of growth for United over the long term.
UNH is a healthcare mega conglomerate.
The HSA business is part of UNH’s Optum Bank division.
Optum Bank is UNH’s fastest growing business division.
Optum Bank holds 15% market share in the sector with 4 million HSAs and 9 billion in deposits.
Old National Bank (ONB)
Old National Bancorp (ONB) is a financial holding company based in Evansville, Indiana. The Company, through its banking subsidiary, provides a range of services, including commercial and consumer loan and depository services, private banking, brokerage, trust, investment advisory and other traditional banking services. Old National owns multiple financial services operations in Indiana, Illinois, and Kentucky.
ONB’s HSA business (The HSA Authority) brings in a small percentage of the company’s overall revenues.
A low-cost core deposit franchise is at the core of Old National’s strategy. In its most recent quarter, ONB’s cost of total deposits rose 4 basis points to 0.40%.
The HSA Authority holds less than 1% HSA market share with 100,000 HSA accounts and 200 million in HSA deposits.
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