Swift growth in Health Savings Accounts spells good news

For banks, brokerage firms and mutual funds, and for insurers and benefit management companies, the tax-favored savings accounts for medical expenses represent a promising business opportunity. As the pot of funds in HSAs climbs toward $65 billion or higher by 2010, managing the accounts will become an increasingly attractive proposition.

At first, health insurers and benefit managers have a leg up. They have the know-how, brands and established employer relationships to lure the money their way. But money management expertise will pay off as well. The same array of investment options available for 401(k)s and other retirement funds is allowed for savings stashed in HSAs.

The increased competition will benefit employers and employees, bringing them better customer service, lower fees for administration and the prospect of higher returns. Most of today’s 1 million HSAs are invested in safe but low-return savings and money market accounts. By 2010, the number of HSAs will total between 15 million and 25 million.

Look for more states to shield HSA contributions from taxes. There’s a good chance that Wis., Mich., Minn., Ohio, Ky., N.J., Mass. and Maine will do so, following similar moves in 2005 by Pa., Miss., Ark., Okla. and Nev. Also under way: A push to end other legal impediments, such as state-mandated insurance, in N.Y., Ariz., Colo. and Calif.