Hello, everyone. Is this working? Should we get started? Is this working? Can you hear me or? Yeah. Okay, perfect. Welcome to HealthEquity's Investor Day. My name is Richard Putnam. Those of you who don't know me, I do Investor Relations here for HealthEquity. You hear it okay? It's not loud?
I can't control the volume here, so. We thought you were joking.
No. Is that better? That's better. Is it going up? All right. Hopefully, our AV team here is working. Welcome. I just wanted to say thank you all. I know it's always a busy time when we take you out of your offices, so we really appreciate you taking time to come and be with us here today. Also want to extend a good, hearty, warm welcome to those that are with us on the video side as well. They'll see the back of your heads. Don't be nervous. It'll be all right. We did the first HealthEquity Investor Day about three years ago, and it happened to be my third day on the job.
It was a wonderful opportunity to get to know some of you, obviously, over the past three years, it's been even better to get to know and work with each of you. Before I turn the mic over to Jon, I wanted to make a few introductions of some of the HealthEquity team members that are here with us. We have some Board of Director members with us, Adrian Dillon in the back, Frank Medici, and I thought I saw Frank Corvino are, I think, are the three Board members that are here with us. Steve Neeleman. I've lost Steve. Where's Steve? He's up by the food. Steve Neeleman, Founder and Vice Chairman. Jon Kessler, President and CEO. Darcy Mott, Executive Vice President and CFO. Let's see, who else have we got? Larry Trittschuh, who is our Executive Vice President, Chief Security Officer.
Angelique Hill, our Executive Vice President in charge of our operations. Ashley Dreier, who's our Executive Vice President of Technology, CIO, CTO. Mark Magee just sitting down. He's our Senior Vice President of Product. Tyson Murdock, Senior Vice President and Controller. I know I'm missing a few. Bill Otten. There's Bill. Bill Otten, Executive Vice President of Sales. Who else?
There's Ted. Ted. Ted's over on the left.
Ted. Sorry. Ted Bloomberg, Executive Vice President and Chief Operating Officer. Who else have I missed?
Brad.
Brad. Brad Bennion, Senior Vice President. Oh, Natalie. Where's Natalie? I can't see Natalie.
She's actually doing work.
She's doing work. Okay, good. Natalie's doing work. Please take a moment. There's a bunch of others, Tracy and others, that I won't take the time to introduce everybody that they've been very instrumental in making this day possible. We're very grateful for all their hard work and everything that they've done to help. All right. A couple of housekeeping items. I'm hoping that this will work in advance. Maybe not. There. Safe Harbor. I know you guys want to study this and make sure that you have it all memorized. I'm not going to go through it, but you have it for your perusal.
Just a little bit of an outline of how the day's going to go. We're going to turn the time over to Jon Kessler. He's going to spend the first 30 minutes or so giving an overview of the company. He'll be followed by three panels. Those panels will be hosted by Bill Otten, Ted Bloomberg, and Steve Neeleman. I'll let them introduce our guests at that time. There'll be a little break in between the second and third panel. We need to change out as far as the microphones go. Please make sure you have time to eat some breakfast.
After the third panel, we'll invite Jon, Steve, Darcy, Ted up, and we'll do a general Q&A. That'll end about 1:00 PM, and 1:00 PM is when lunch will be served. We'd invite you to stick around and enjoy the opportunity to kind of informally meet and mix and mingle. Without further ado, let's get this started. We'll turn it over to Jon Kessler.
Thank you, Richard. Oh, I don't even need the mic. Look at that.
You're a mic, right?
Either that or I'm turning into some kind of something. As part of the entertainment today, one of the things you get is, beyond my usual inability to see and poor motor skills, I really can't see anything today. That means a couple of things. The good news for you is I have no script because I couldn't read it if I had one. The other good news for you is that there's a non-zero chance that I will kind of do a Jimmy Buffett and fall off the front of this thing. The bad news is that means I get to meander a little bit, and I'll do my best to control my tendency to do that.
It's my job to spend a little while providing an introduction to the company, you'll be relieved to know that much of what I discuss is going to be focused forward. Let's just start by talking about our agenda. Well, we did that. Okay, that's good. The investment bankers who helped us take the company public, all of them have gone on to private equity at this point. That was a joke. It's kind of true to some extent. Not all of them. Really did their work because we're still using the same slides, and that's largely because the story hasn't changed really at all. At the time of our IPO five years ago, we promised you that we would deliver a combination of growth, of visibility, of sustainability and sustainable competitive advantage and profitability.
That's really what we have tried to do over this period of time. We've been using the same measures the whole time in terms of revenue CAGR at about 36% over the period, 20 straight quarters of beating or meeting your expectations, we certainly appreciate that everyone tries to listen to us carefully and keep us in line. A lot of increase in the profitability of what was already quite a profitable business. Most importantly, from my perspective, continued growth in our market share. We're in our ninth straight year of market share growth. All that's happened because we have a team that is, I think, really unique, and people use the word unique a lot.
I think it's appropriate here in that not only is the team unique in its expertise, being at the confluence of consumer finance technology and health benefits, but it's also, I think, unique in its culture, and in particular over the last few years, in its ability to bring new blood, new DNA into that culture, and have people adapt to the culture and likewise. Ted joined us about a year ago, Ted's kind of jokingly, I sometimes say I'm not sure if he thinks this is a compliment. He probably doesn't. Ted when he interviewed for the role, I had actually met him on a plane seven years earlier, we had kept in touch, I'm like, "This guy is like I was 10 years ago." He is. He's kind of loud. He's got opinions, he's not shy about them.
He has done a wonderful job of becoming part of our culture, but I think just as importantly, our culture has done a good job of adapting to different styles. I'd say the same thing about the other end of that spectrum. Mary Lynn Yakel, who's in the room somewhere. There she is. Hi, Mary Lynn. Who's been with the company with a small hiatus to join a small firm whose name we won't mention. The color's not pink, but it's a different color like that. Has been with the company 12 years? All told, yeah. All told? Is still breaking glass of one type or another within the organization.
My point being that underneath, I think Steve made the point earlier today in as we were doing the bell ringing that culture does eat strategy for breakfast, and hopefully, you have both, but we're very, very pleased with the cultural foundation that we have, and that's really a credit to this unique group of individuals. I don't know how I move. Do I go like this and then it just happens? Is Richard pushing a button? You're pushing a button. Yeah. I'm lucky if I can find my nose today. The doctor goes, "Oh, it's going to be a little blurry." I'm like, "It's always a little blurry. This is just more." We talk about four key metrics in our business and have talked about those metrics since day one.
Revenue and profitability as measured by adjusted EBITDA, and then accounts and assets under management or custodial assets. Over the period since our IPO, and certainly every year during that period, the company has shown remarkable growth and importantly, has outgrown the market. What you notice is happening, and this is relevant to how we think about the industry going forward, is that the asset curve, right, has started to accelerate for the market and has accelerated even faster for us. I wish this was the weather, and I could be like, "There's going to be a storm front coming." I always wanted to do that. Wouldn't that be fun? There you go. Thank you. It's like that Steve Martin. You can't pre-record the weather. It's L.A. It's obscure. In any event, what were we talking about?
If I had to pick a couple of trends that I'd want to be going right and I could only pick two, these would be the ones. The fact that assets have grown faster than accounts reflects the fact that our members continue to build savings, and that's a good thing. Let's keep going. I remember when we did the first Analyst Day, the pre-IPO one where people haven't even done their models yet, Sandy Draper's like, "What company is this that they've stuck me with?" He's like, "I don't do that." Steven Wardell, who's around here somewhere, is getting all excited and so forth and trying to figure out what's what.
We would get asked at the time, "Well, you're this little company out here in Utah, and if you look at your competitors, I mean, your competitors are Fidelity and UnitedHealthcare." Bank of America, and at the time, Chase. You're outperforming the market. How do you do that? I have to admit, we always struggled a little bit to explain this in a soundbite, and that's still true. We still struggle a little bit to explain it in a soundbite. Fortunately, our people in the field are a little better at it than we are, but also fortunately, they get a little more time. From my perspective, the word that I think most importantly differentiates us is that we have approached our entire industry from the perspective of partnership. When we talk about purple within our culture, that's about partnership.
That same concept extends to how we think about the competitive landscape or the market landscape and what we're doing. What we've done from a technology perspective, from a people perspective, and from a business model perspective, is we've tried to build a company recognizing that we are in kind of a tweener industry that thrives on the basis of its ability to work with others. If you look at our competitors, one of our largest competitors is a bank. We chose not to be a bank, but rather to partner with banks who could do an outstanding job of earning returns on the deposits of our members, sharing those with us, but doing what they do well and allowing us to do what we do well. One of our largest competitors is a health plan.
We partner with 141 health and other partners in all. They do what they do well which is, by the way, a nontrivial task of caring for, in the case of workers, I think sometimes we forget this, that the group health system cares for 195 million of us. They do an outstanding job of that, and we contribute in our way. We do this in the form of partnership. As many of you know, there are cases where we don't work with plans because we just can't be good partners. We can't do it within this model. That's a piece of it. One of our largest competitors is a retirement firm, right? The way we've approached that industry over the last few years is to partner with others.
Partner is one of those words that I think gets used cheaply in the context of investment discussions, sales discussions, and so forth. I was on a phone call about two weeks ago, maybe a little longer than that, maybe three or four weeks ago, with a prospective partner, and an official that was sort of in the call, at one point used what we refer to as the V word. Does anyone know what the V word is? That's the one, vendor. At that point, we stopped the conversation and said, "Wait a minute. We want to work with you, but you are not our vendor, and we are not your vendor." I think this person was taken a little bit aback in that we were visibly like, "No. Let's put aside the particulars of what we're discussing.
That doesn't work for us." That's reflected in the durability of these partnerships and in the value that they've generated for our mutual customers and, of course, for our shareholders. That spirit of partnership is really what has made us unique from my perspective and allowed us to deliver a service that takes in the best of what our members actually need to do what they need to do, which is survive and thrive in a healthcare system where they have been given increasing responsibility to manage a portion of the cost. We can't do that alone. Nobody can do it alone. There's no single entity in the system that has the ability to do that. What we have is the unique ability to partner to create a great outcome for members, and that's what we're doing. Let's start looking forward.
I feel like I can pause, and it sounds very serious. It's really not, but I'll try. Today, as was mentioned earlier, today we have a little over four million health savings account members, a little over $8 billion in assets. The market as a whole, that's somewhere in the mid-high teens of the total market. The market's a little over $50 billion in assets and 25 million odd accounts. As I've said before, our view is that this is a market that at maturity will be between 50 million and 60 million accounts and between $600 billion and $1 trillion in assets. If you unpack that statement, what it implies is that going forward, our strategy will be a little different than it was five years ago in that, right? Let's just say it takes us 10 years to get to that place, and that's the commitment.
We're a little bit mission-driven, as you might imagine. We've set a mission. Our mission is that there are as many health savings accounts out there, and they're as prevalent as 401Ks and similar retirement accounts. That means around 60 million or so. If you do the math It takes about, I don't know, 8% account CAGR to get there. Well, that's pretty good, but that wouldn't be good enough. For the asset side to get to where it needs to get to, you're talking about a compound annual growth rate, again, depending on how long you give it and so forth, but somewhere in the 20s over time. That's really an important little factoid in understanding how we look at the company going forward.
Obviously, it will continue to be important for us to win new partnerships and win new clients at the employer level, right? It will be even more important for us to grow the relationships that we have with our existing clients, to grow the relationships we have with our existing members, right? To help them really get over the hump of learning to be confident consumers and ultimately what we sometimes call healthy savers. At the same time, the one thing that's different in this slide from where it's been before is that it's got a little orange ring on the outside. Some of you will get the joke, some of you won't. That's okay. Everyone will get it eventually, or it won't be that funny.
At the same time, we've recognized that part of meeting every member where they are sometimes is meeting our members before they're even in a health savings account. Part of meeting every client where our clients are is being able to say yes to what they want us to do. We've expanded the set of services that we offer over the last few years, and particularly this year, to include some of the services that I think at one time were viewed as, certainly I viewed them as more important than the health savings accounts. Health savings accounts were new, but over time have grown to be, I think, largely ancillary to the core objective of, or just a part of the core objective.
Ancillary is probably the wrong word, but a part of the core objective of helping consumers become strong health savers and build health savings. That's the FSAs and HRAs and COBRA and the like. If I look at all that from a market perspective, I mean, I appreciate that we're all, I think, well, many of us here are shareholders of this company, and certainly all of us are interested in its financial health. Today's market for HSAs on a revenue basis is somewhere around $2 billion. At maturity I don't know what I'm doing. I'm doing something. I'm getting close. I'm not kidding. This could actually happen. They told me to sit down, which is a little hard for me to do. At maturity, this, in our view, will be a market of between $8 and $10 billion in revenue.
By the way, that's assuming that interest rates are at their sort of equilibrium level. It's assuming that service fees will decline because we will keep pushing them down to provide more value to our customers. It's assuming that investing will get cheaper as balances grow and all that, and of course, assuming that more and more people are investors, versus just being in cash. All those factors that some of our friends on the short side cite as factors that are sort of part of the wall of worry, well, duh, of course. Those things should happen because, by the way, all of those things are signs that we're doing the right thing for our ultimate customers, consumers. With all that said, this is a market that, from a revenue perspective, can grow by three, four, five times over this period of time.
I don't know how long this is going to take. I know what our goal is, but I know that we're going to be there the whole way. I want to talk a little bit about, and then I'll turn over to some fantastic panels that are going to talk more about, really from our perspective, the key points in getting us there. First thing we've got to do that's been somewhat of a focus but is becoming more of a focus is to help our clients and partners drive enrollment. That is, drive people to begin the journey of health savings. From my perspective, we've always had some really great tools for this, but those tools are getting a lot better, and they all start with that concept of partnership, recognizing that this is not one-way communication. It's not even one-channel communication, right?
It only works when we and our partners at the employer level are speaking, and among our partners at the business level are speaking the same language. This is a particular employer. It's quite a large one and just an interesting, not two-year, not three-year, this is 10 years, right? We thought, we tried to say, "What's the longest timeframe we can come up with that's big enough that it's a reasonable case study?" Let's just talk to you a little bit about what happened here. Right? Where'd the company start, right? It's a company in the healthcare industry. Where did it start? It started with, "Holy crap," right? Health insurance premiums are going up. We've got a population that's partially unionized. People are screaming. We need to offer them some plan that's cheap. Sound familiar? That never happens at SAP.
That's not the way it goes. Is it? Where is he? I can't see that far. I know he's here. There he is. First of all, it's in a whole different language. So what did they do? They said, "Oh, we heard about these high-deductible plans. Let's roll one out, and we'll tell people, good news, it's cheap." People got the message. Cheap usually doesn't mean good, especially when it comes to our healthcare, right? They didn't have anything to say about that little account thing. That was like, I know what that was. Right? Look what happened. Basically got no enrollment. That went on for a few years, right?
Eventually they said, "You know, we've got to like, yeah, it's cheap, and we want it to be cheap, but we kind of got to bribe some people into it." I'm sure they wouldn't put it that way. They told me I could say that. So they said, "All right. Let's do a contribution." That helped a little bit. In fact, some would say it tripled enrollment. The only problem is when you start at three and get to six, that's not so great. Right? That was a start. They started saying, "Okay, for this to really be a win for our team members, we have to get them to really understand what this account thing's about. That means we have to encourage them to contribute, and so we'll adopt some of the strategies we've used on the retirement side.
Let's have a matching contribution." That really did help quite a bit. Then they said, "If this is really important to us, we, along with our partners," in this case us, "we need to begin talking to our members explicitly and listening to their feedback," right? "Doing whether it's focus group work or listening to what's being said in the member services calls or what have you, we need to listen to our customers." One of the things customers said is, "We really like that employer contribution, but here's the thing, these are plans with a deductible, and the deductible starts at the beginning of the year, but the money doesn't. So like in January and February and March, I'm like a little stretched here," right? That's a reason not to enroll. They said, "Okay, well, we can help fix that." Right?
Let's front-load a portion of that match. Same match, just we'll deliver a little of it a little earlier in the year." Right? That made a huge impact, right? That came from listening to members. Real work, not this like sometimes, I'm sure we do it too, phony baloney about best practices. Best practices are great, but they usually come from the top down. The best practice I've ever learned is to listen. Not according to my wife. I'm working on it. I'm only 23 years in, so I've got at least 40 more years to go. That has really helped. Then over time, they've continued to listen and continued to make small improvements to the plan. Then most recently, now they're like, "Okay. It's been 10 years. We've finally gotten over the hurdle of people believing this is the cheap plan," right?
Now what are they telling us? "You know what? There are things we'd like in terms of choice within the plan. We were happy that it was the cheapest, there's still some frills we're willing to pay for." Some people wanted them, some people didn't. They said, "Let's not just have one HSA-qualified plan, let's have multiple HSA-qualified plans." Right? We worked with them on that, right? When I say we worked with them, some of the people in this room know exactly what I'm talking about. These are human beings at HealthEquity who, we're not going to take the job of the professionals that do an outstanding job of providing benefits consulting. When it comes to how to listen to consumers with regard to health savings and HSAs and HSA plans, there's nobody who knows more about it than we do.
What our people do is help our partners listen to their ultimate customers, meaning their team members, their employees. That's all great. 10 years later, we're at 60%. Now we have more tools. This is the stuff on the right. It's hidden behind this chair. Okay. Now it's not hidden behind the chair, at least not me. Okay. What's next for this group? We're going to connect, quite literally, going to connect health and wealth by connecting their HSA to their retirement plan. That connectivity doesn't just mean features like, oh, you can see the balances together. It also means education. When we have retirement discussions with team members, and those discussions are by their nature, longer term, right? We'll also be having healthcare discussions.
When we are out there providing member service, we can know a little more about a member, that can help us deliver the right message at the right time. We're going to do that, right? That's a part of the education. This is a client that doesn't yet have our Balance Booster feature that really for those people who end up in very unfortunately timed situations where they need to get access to their own contributions as well as their employers more quickly for an actual healthcare expense that is really incurred, right? Balance Booster really does a great job of doing that in a painless way, right? There's the opportunity for folks who are currently participating in the FSA plan, right? They like the copays. That's easy for them. They understand it.
They are scared because they've heard that those drug companies and pharmacies, they cheat you out of your money, and some of them do. They like the certainty of a copay plan, people who are in an FSA, the jump's pretty short, right? We have the opportunity to administer those and to help those consumers get comfortable, not just with saving money today, but with using that money for tomorrow, right? They have the opportunity to say, "Okay, we've gotten to the place where our team members are very comfortable with this. Everyone's going to be in an HSA plan." Right? Note, this is a long journey, that's okay because these are real things we're asking people to do. They're serious. The system as a whole is still not ready for people, for consumers who have information and are empowered, right?
It's better than it was five years ago, but this is okay. If this were an easy thing, heck, this company probably wouldn't have been here because people would've figured it out in 2005, and Steve would've been in his garage, and it would've been too late. Right? This just gives you a feel for the first focus that we have going forward, which is about driving enrollment. Next slide. A piece of that is driving engagement. We, as you know, think about our members in terms of where they are on a health savings continuum. We want to at least have our members be smart spenders, but better yet, we want them to be confident consumers and healthy savers, right?
We have some unique tools to do that, not just because of the technology, but also because of the fact that our members have a reason to be with us and interact with us, not on an annual basis, on a monthly basis. Right? That's important because if there wasn't a reason. We're Americans. We're not stupid all the time. We're just busy, right?
I mean. A few of us. See, thank you. Telling people to take time out of their day to do whatever it is, forget it. I don't have time for that, right? People have service interactions all the time, and that's really our opportunity to educate. Now we have the opportunity to do that, not just for HSA members, but for people who would be HSA members that are in flex accounts or just in the 401 and haven't really figured the HSA out yet or what have you. That's the opportunity there going forward. I know I took them by surprise because it was really long on the last slide, and then that one was quick. There's driving enrollment, there's driving engagement, then ultimately there's driving investment. We get asked a lot, even to this day. It's that good. That's how good it is.
It's going to get better. I'm like a comedian heckling the people in the back early. The Borscht Belt is not far away. It's driving investment, right? As a company, we have tried to set ourselves up in a way to live in the, what we believe is, the future world of personal finance and investing. That is a world, sorry to some of you in the room, but I know you all appreciate this, of very competitive fees, right, of not having anything hidden, of transparency, and of a focus ultimately on one thing, which is doing right by our members. Right? We're the first in our industry to create our little regulated investment advisor. We're the first in our industry to bring robo-advice into the HSA world, right? We're the first in our industry to bring an entirely low-fee lineup.
We were the only ones in our industry, to my knowledge, who came out in support of the fiduciary rule because we thought it was the right thing for investors, and we have continued to comply with the rule, whether it exists or not. Ultimately, that's about driving results for our members. The best way I can talk about this is just with simple numbers. I'm an econometrician ultimately, and so people often say, will occasionally say, "Well, this stuff is great if you have money." It's actually the opposite. If you have money, you don't need HSA, right? People say, "Why don't you sell through financial advisors and stuff?" The reason is because people who have financial advisors don't need an HSA for the most part. They might want one, but it's not a need issue, right?
People who need an HSA are people who have nothing to save, and that's the average American family. The average American family, I feel like I'm a politician. I'm announcing my candidacy for nothing right now. Okay. The average American family generates about $74,000 in annual household income, has about $64,000 in annual household expenditures, about $10,000 difference, before healthcare or retirement savings, right? Let's ask, who works for a fancy firm? I don't know. One of those high-bred type deals. Who can I pick? Can you tell me? It's okay if you can't say. At SAP, how much do team members pay on average for their health premiums a year?
As a percentage of salary or-
Yeah, no, just total dollars. How much do they pay? $3,000, $4,000?
$3,000.
Then there's a few thousand dollars out of pocket. Healthcare costs, the average American consumer, when you look at the premium contribution and the out-of-pocket component, costs most of that remaining $10,000, and for a lot of us, all of it. Which means there's nothing left to save, right? Thanks for bailing me out. What's happened over the last 20-odd years is that the cost of benefits has each and every year outpaced increases in productivity, GDP, wages, however you want to measure it. Right? There's only two places that money can come from, the shareholders, that doesn't usually happen, or compensation, right? Compensation is, at some level, a single pool, whether it's benefits or cash comp. If benefits costs are going up faster than your total compensation pool, guess what happens?
It impinges on the ability to raise wages, and that's exactly what's happened. People are like, "Oh, there's a savings crisis." Well, duh. Right? What's great about the product that we offer is even for someone with no money to save, zero, not a penny, right? That individual can take their existing health expenditures, run them through an HSA, even if they can't do anything in terms of lowering their costs, et cetera. Everything's the same, they can still generate over the course of a 40-year life, $124,000 in an HSA. By the way, in a 401K, that'd be a purchasing power because it's not taxed on the way out of about $160,000, right? Which is, roughly speaking, the average balance for a couple of a 401K at retirement.
With no money, zero dollars, zero change in et cetera, you can produce enough value in an HSA to be ahead of the average American saver. Now, I appreciate that the average American saver isn't the highest bar in the world, but it's a start. Now, what if that person can just as a result of having information, of looking at their medical bills and so forth, of a system that's maybe working better, maybe they spend $500 less a year on actual healthcare. Maybe it's just because the premiums are lower. Maybe it's because there's an employer contribution. $500, right? Put that back in the HSA, now my $124,000 is $176,000. That would be if it were a 401K over $200,000 of purchasing power, right? Now you're way ahead of the average American.
Now let's just go crazy and say that individual can put $500 a year, $500 more bucks, to save for future healthcare needs. You are way ahead of the game, right? Even though you can't see it, I'm not going to try and move another chair. In fact, I'm going to move this chair back because we're getting to the end. You're at a quarter million dollars in your HSA, which by the way, if it were a 401K, because the purchasing power would be more than, it would be almost a third of a million dollars. The only thing that's happened here is that we have treated employees, our customers, we call them our members, whatever you want to call them, we've treated consumers like adults. We've given them the information to succeed. We've given them the incentive to succeed.
That is what HealthEquity is about. These are people who need to have this product. The alternatives are much worse financially and much worse in every other perspective, that is what drives us as an organization. The great thing about this, and this is where I end, you'll be happy to know, is for this audience, that is for you, our investors, and for we as team members at HealthEquity, when this happens, when our members win, our team members win, our investors win. Going back to the very beginning of this presentation, we created a model that was about partnership, and part of that partnership is that our incentives are aligned with our members. We make money when they make money, and that is more true today than it was five years. A lot more true.
It's twice as true today as it was five years ago. In my view, it will be twice as true in five years as it is today. We have three outstanding panels today. We have two. You can guess which one. No, I'm kidding. We have three. The first is going to be moderated by my friend Bill Otten, really will be about true experts in how employers think as broadly about these issues, how the industry thinks about them, and so forth. Some of you can tease Mike Trilli, or tease? No, that's not right. I'm sorry. You can ask Mike Trilli about his famous 8%. Some of you know what that is. See?
Okay. He knows. Sander is here. Adam Scheftski, by the way. Did I do it? I did it right. I've only known Sander for like 20 years. I'm getting it right. There is nobody who knows more about this business than Sander. Okay? If he says we suck, we suck. Paul Fronstin. I think Paul's here somewhere. Paul is in a unique position because Paul is probably the only human being in the world who has access to actual personal data of individuals who are simultaneously in HSAs and in retirement plans, and he can see because we help him do this and others do as well, he can see how they behave, and he can tell you definitively, more so than anyone else, even though it's early days, how these people actually behave, how they save, where they're doing well, but also, bless you, where the opportunities are.
Right? Second panel, so that's kind of like the HSA market and expertise and stuff. Second panel- You're going to maybe do the second panel? All right. Oh, should we do that? Good. No, I was going to let that happen. Well, I'll just say briefly, the second panel is moderated by Ted, and includes some of our outstanding employer partners. Right? I really thank you guys for doing this. This is not glamour work. There's not a lot of swag. These guys all have really difficult jobs, and they're getting ramped up for It never ends. They're getting ramped up for benefits enrollment. So you'll hear a little bit from their perspective, how they perceive the connection between health and wealth. Lastly, hopefully, I know Stephanie's plane's a little bit funky, but- She's on the ground, she's on the ground. That's good.
No private jets anymore. You know how that is. Or helicopters. Yeah, no helicopters either. Good point. Steve and Stephanie Cutter are going to talk about the regulatory environment. We thought Stephanie would be fantastic for this because she's really been through, for somebody who, whatever the right appropriate term is relatively young and so forth, has seen a lot of Washington, and I think has an incredibly thoughtful and balanced perspective on what's going on. So that's what we have planned for you today. Now I get to shut up. At the end, I'll come back with Darcy, Steve, Ted, and we won't answer your questions. Thank you.
Thank you, Jon. While Bill and his panel are coming up, I just want to let you know that we've got Wi-Fi set up now. It's Marketside Guest, and the username and password are both hqy lowercase, all lowercase. If you want to use Wi-Fi, we now have that set up. Bill, go ahead.
Oh, thank you. Thank you, Jon. Thank you, Richard. That was like a motivational speech. I'm fired up, ready to go.
He's trying to get
I know. I would just like to extend my welcome to all of you and my thanks for joining us today on our five-year anniversary. Pretty exciting day for us, and getting to share with you makes it even more exciting. I'm also excited to have three distinguished panel members with me today to talk about the HSA market dynamics. We have Aite, we have EBRI, we have Mercer, and what I'd like to do to get started is kind of give you a little more formal introduction to each one of them. Do it right. I've wrote it down. Michael Trilli is the research director for Aite Group's insurance practice, which includes healthcare insurance.
He specializes in commercial and consumer healthcare payment innovation spanning providers, payers, and the employer benefits industries. He brings years of experience in product management, strategic partnerships, market research, and business strategy in the financial services and payments industry. Welcome, Mike.
Thank you.
Dr. Paul Fronstin is the director of Health Research and Education program at the Employee Benefit Research Institute, also known as EBRI, a private, nonprofit, nonpartisan organization committed to original public policy research and education on economic security and employee benefits. He also oversees the Center for Research on Health Benefits Innovation. He's been with EBRI since 1993. Dr. Fronstin's research interests include trends in employment-based health benefits, private health insurance exchanges, workplace wellness programs, consumer-driven health benefits, retiree health benefits, employee benefits and taxation, and public opinion about health benefits and healthcare. Thanks for being here, Paul.
Thank you.
Our third panelist is Sander Domaszewicz, a 20-year veteran, principal, and senior consultant at Mercer. Sander is based in the Irvine, California office and is working to fix healthcare. He heads up health consumerism and health engagement efforts for Mercer's total- This way. This way, Total Health Management group and has led many health innovation efforts, developing and implementing non-traditional solutions that reshape the marketplace. His work often revolves around emerging benefits and ways to encourage groups to become more involved and informed around healthcare costs and quality. Sander, it's good to have you with us. All right. Before I jump into questions, I'd like to give each of you an opportunity to discuss the emerging trends that are going on in each of your areas. Mike, would you start us off?
Sure. Is my mic on? First of all, Aite Group, we're an independent research and advisory firm. Prior to my seven years at Aite Group, I was a corporate practitioner in a variety of functional roles across operations, risk, and more predominantly in product, strategy development, etc. We bring that lens to the research. If you look at the trends that we cover, one of the bellwether research pieces we do is looking at HSAs in conjunction with other tax advantage accounts. We try to size the market of accounts, and we also look at sizing the spend from those accounts, is really where we've started. We're in flux with our current iteration of that.
If you look at the trends relative to what we see there, and this goes to the infamous 8% that Jon had referenced earlier, typically what we're trying to do is look at that as a product portfolio. Certainly there's interconnections between HSA growth with HRA increases or decreases, as well as FSA. Even though we're in flight here, what we're still seeing is pro-growth on the HSA side. If you look at the other research we're doing, we've really focused on the distribution. Now we're looking at why are HSAs growing? Or intended to grow. The two channels that we've really looked at are what we call the convergence of health and wealth.
A little bit of what Jon talked about here on the retirement side, we've just released a piece where we've joined forces with our wealth management analyst as we really start to dive deep into this and really understand the nuances of this channel from an HSA perspective. We can get into a little bit of that, but we certainly see opportunity there, we also see early stage, certainly from a distribution perspective. The other distribution channel that I think is really interesting is the health insurance, the health plans. This is one where, from our perspective, we're really trying to understand how HSAs play into this broader notion of consumer engagement that these health plans are really investing in. What we're seeing now is HSAs are becoming a real core piece.
Specifically, the reason that is, if you think of what a health plan is trying to do, is they're trying to create a more digital experience with their members. If you look at the health HSA option, and you look at the account, that is becoming a critical piece of that member engagement. We are seeing an activation in the health plan channel. We are pretty pro-growth relative to the health plans driving more HSA volume than they have in the past. I guess the last one would really be around Where was I going with that? Actually, I'll pass it on, I'll hold off on that.
Okay, thanks, Mike.
Those are the trends we see.
We got more questions coming. Yep. Paul?
Great. Paul, thank you for including me in this. It's great to be here. EBRI is a nonprofit based in Washington, D.C. We're a membership organization. HealthEquity is one of our members. We have a very diverse group of members that include employers, unions, trade associations, benefit consultants, financial service organizations. Probably forgetting a constituency in there. It allows us to be credible, unbiased in Washington, which is quite rare. It gives us lots of perspectives. We do research on lots of different aspects of health benefits in the workplace. A lot of the work we've been doing relates to high deductible plans and HSAs. One of the things that I think is most exciting is something that's not happening, and that is, after the ACA, there was a lot of expectations that employers would stop offering health benefits. Didn't happen.
If anything, we're seeing the last few years, more employers offering health benefits rather than fewer. On the HSA side, lots of interest among employers and others in changing the definition of what's an HSA-eligible health plan, which I think brightens the outlook for HSAs. Perhaps one of the more important findings in our work, Jon mentioned that we have a very unique database of HSA account owners, is that while for many people, once they sign up for an HSA, the account is new, it's confusing. They may find something they don't like. The first time I signed up for one in 2007, I immediately found something I didn't like.
Couldn't get free checks because I wasn't the account owner, even though I was covered by the health plan. I should know better, even back then. We're seeing that the longer people have had these accounts, the more they put into it, and the more likely they are to invest. It may take some time to engage people and to educate them, but over time, they move in the direction of doing the things that are in their advantage.
Thanks, Paul. Sander?
Sure. Thank you. Appreciate being here today. Mercer is part of Marsh & McLennan Companies. We're sister companies with Marsh and Oliver Wyman, if you're familiar with the Marsh & McLennan Companies families. Mercer is really involved across three areas of business. We're here to improve the health, wealth, and career of employees and workers across the U.S. We touch 110 million employees daily. My work specifically focuses on the healthcare area. We're out in the field building healthcare strategies with a lot of employers, large and small and mid-size. We're there in the trenches doing a lot of what we're talking about, building the strategies. How do you grow enrollment? How do you change the dynamics of what's happening in your population? How do you keep people satisfied at work, productive, healthy, and happy with their benefits? It's a pretty tough balancing act.
We're seeing a big push now to try and balance being able to retain and attract folks, because in this tight job market, it's pretty tough to differentiate yourself and to stay competitive. We also see a big push from a lot of employers to think about how they address maybe their lower-paid populations and keep them from falling into a pitfall where they're not able to afford the necessary care that they need for their families, and to stay healthy and stay committed to their work. HSAs are a part of that. A big part of what I do is help folks think about how to keep people informed and involved around their healthcare. Like Paul said, activating folks, the HSAs are a big part of that portfolio of how employers are trying to keep people activated, paying attention to healthcare, paying attention to their benefits.
Yeah, thanks for sharing that with us, guys. Let's start off with you, Mike. You've all probably heard us talk about connecting health and wealth. Jon certainly referenced that, we talk about a convergence between HSAs and the retirement community, 401 s specifically. You saw some stats on that earlier. What are you seeing in the marketplace? What kind of trends, do you really see this convergence taking place?
I do, I think it falls under the broader umbrella of financial wellness, right? I think, let's make no mistake about it, when I think of the retirement community, if you will, it's another product in the portfolio, and probably one that's needed. If we think of an opportunity for, let's say, retirement plan advisors to differentiate, I think certainly longer term, HSAs can be part of that, right? If I look at it from just a practical standpoint. When we think of Health Savings Accounts now, one of the reasons that we focus so much on the payment component is you have a lot of spenders that use those accounts. When I really think of the trend that will develop from this, it's capturing those that are on the sidelines that obviously are not the spenders but the investors.
I think there's a real opportunity for this distribution channel, if you will, to reach a section of folks that maybe have not been engaged to this point. I think that's really where when we think of Health Savings Accounts, you have a spending component, saving, and investing. I think certainly as it tries to normalize that out and get more into the investor side, I do think we're early, and there's some challenges in what I'll call the distribution pipeline. I do see longer term, this is a channel that can work to do just that.
Thanks, Mike. Paul, in addition to this connection between HSAs and 401Ks, how do you see HSAs connecting to what we call other CDBs or consumer-directed benefit offerings?
Let me add something to what Mike said first, which is for most people, HSAs are new. About 75% have had them for just a few years, and they haven't figured out yet that they're not spenders, right? Because you've got your 80/20 rule, which means you've got your 20/80 rule. 20% of the population account for most of the spending, 80% account for very little. Most people, they may go into the plan and the account thinking that how they're going to do this, and then they realize that they're part of that population that uses no healthcare or next to no healthcare in any given year, which is easily about 50% of the population. They do have an opportunity to save money, build up a balance, and ultimately invest it. It just takes them a little bit of time to figure that out.
We've been doing research on both HSA-eligible health plans and HSAs. One of the most interesting things we've found recently is just looking at deductibles across the board. We have found that deductibles and HSAs have been increasing, but they haven't been increasing that fast. Whereas deductibles and PPOs that are not HSA eligible have been increasing a lot faster. I think it bodes well for HSAs in the sense that, at some point, workers are going to look at these deductibles that they have, and they're going to think, "Why don't I have an HSA? Why isn't my employer at least giving me the ability to save some money on a pre-tax basis to pay these out-of-pocket expenses?" I think that's eventually going to catch up. People will figure that out.
The other work that we've done related to plan design, we found a number of years ago, and Sander alluded to this, that the high deductible often causes some negative things for low-income workers. We found that they cut back on use of services that they shouldn't be cutting back on, even services that are free, like flu shots, and they're more likely to wind up in the emergency department. When we came out with this study maybe three or four years ago, one of my employer members immediately called me up and said, "We don't want to do any harm to our low-income workers, so we're going to front them all of our contribution." Jon alluded to this earlier as well.
I think as employers get more and more data on what's working and what's not, they're definitely willing to make the adjustments that they think they need to make so that they're not doing harm to workers. I wouldn't put every employer in that category, but certainly a lot of the ones that we deal with are interested in the well-being of their employees to the degree that they'll make those kinds of adjustments.
Paul, you actually bring up a really interesting point. Sander, I'd like to direct this question to you. You talked a little bit about which employers are doing things that are working and which ones aren't. From a plan design standpoint, Sander, what do you see in the marketplace as far as plan designs that support high levels of adoption versus maybe those that don't?
Sure. Yeah. I guess I can continue to riff off of what Paul said, the average deductible for a PPO and for a large employer, over 500 employees, is about $1,000. For smaller employees, it's about twice that, $2,000. The incremental difference there to offer folks the opportunity to save tax-free and be able to roll over that money is not very far now. I think that that's pretty consistent. One thing that I've seen that's been consistent with folks kind of getting how the dynamics work of consumer-directed plans is that we've continually seen the amount of employers that contribute to the HSA, kind of a basic thing that you would think that in order to get people to pay attention to this, to think like a consumer, you got to have an account as a starting point, and it's up to almost 80% now.
We started off in the low 70s when we started tracking it more than a decade ago. I think all those things are very positive. Offering multiple plans we talked about offering matching contributions are often positive. Mercer's done for the last four or five years, we've done a tracking of some best practices across all of the benefit design that employers are doing, then we've kind of traced that back to how much of an increase in cost are they seeing year-over-year, and what is their absolute cost. Consistently for the last five years when we've done this, we've seen a meaningful difference between the folks that are doing the most best practices and the least best practices. Among those best practices are offering HSA plans, offering a contribution to those HSA plans.
There's about 25 other factors in there, a lot of them having to do with well-being, steering people to the most effective and affordable healthcare delivery spots, offering telemedicine, accountable care organizations. You guys can guess what some of these other pieces are. Taken as a whole, they really kind of represent, in my mind, consumerism, right? Consumerism to take care of yourself, consumerism to spend your money wisely and at the right place, and get value from it when you spend that money.
If you take these factors, employers that are using more of these best practices, 16 or more of the best practices are a percentage or two better every year in terms of their cost increases not going up nearly as fast. We see a pretty positive correlation between folks that are getting the message and kind of helping their folks down that path and folks that aren't.
Thanks, Sander. I'd like to stay with you for just a second if I can. You mentioned kind of employer size early in your comments there. Do you see a different trend line if it's a small employer versus medium-sized versus large enterprise employer?
Yeah. There's definitely a chasm between what small employers are doing and what large employers are doing. If you look at our survey data, about a third of smaller employers, 500 or less employees, are adopting consumer-directed plans, and about well over two-thirds of large employers are adopting consumer-directed plans. Once you get to the jumbo areas, 20,000-plus employees, you're way up into the 80+% adoption of HSAs. There's definitely a disconnect there. There's folks that are designated and thinking about healthcare all the time at these large companies. At the smaller companies, they're wearing many hats. It takes a little bit of effort and energy on behalf of the employer to educate folks, as well as the brokers to kind of, on one side, we've seen the dynamic, gosh, I'm getting commissions. I'm going to take a haircut.
I don't want to put people into a lower cost plan, get paid less and do more work. Why would I do that? At the same time, they're maybe not driving enrollment as fast. We do see with those deductibles at $2,000 a piece on average, it's a pretty short hop between why wouldn't we do this? There's no reason at this point not to.
The way these plans are offered by firm size is different, and that's changing. Small employers, when they offer it's usually the only plan option. Every's an exception to that. Large employers typically just add the plan. A lot of them don't do much to incentivize people at first, but that changes over time. We're seeing an increasing number of large employers going to full replacement or just changing the incentives around to drive enrollment in the HSA plan. For instance, just eliminating premiums for the HSA plan, which we've seen, and that has a huge impact on enrollment.
If I could just jump in there, I'd be interested to hear your points on this as well. As we look at the data now and not think of net new employers, but kind of stick with the employers that have this adoption, one of the things that we're trying to baseline is how many more employees are you getting actively involved within that account? I think we only have a one-year kind of baseline, but we are seeing increased activity of the number of employees, so about 10%-15% more per employer.
You're seeing new HSA growth within that install base, and I think it has a lot to do with what you're saying relative to employer seeding. I also think there's been a real, and it continues to be, it's not solved, but there's a real effort on education at enrollment. I think there's some technology changes that are really helping to drive those employers that have the HSA and drive more employees to enroll in that account.
Thank you, Mike. We're going to ask one more question, then we'll open it up for questions from the audience. It's kind of an open-ended question, so hopefully that gets some thoughts going. What do you see happening in the HSA market if we were to look out the next five to 10 years? I'll start with you, Mike, and we'll go back down.
Well, at some point, you're going to reach a saturation point in the upper end of the market. I think, as I look out at five to 10 years, I think it becomes a different competitive dynamic. I think in the upper end of the market, you get into companies that can provide different value propositions through bundled services that really appeal to the large employers. I think as you go down market, it becomes a lot about distribution and whether it's through partnerships or just how mature distribution is.
I continue to see in our forecast, at least the five-year forecast, a continued positive trend for both net new employers as well as getting more employees into those accounts. I think certainly we're going to see a different competitive landscape at the end of that in terms of the competition, but that's what I would see in terms of the actual total accounts.
Paul?
Keep in mind, I'm an economist. Nobody expected my predictions to come true. 5- 10 years. One, there's a lot of uncertainty. Does the Cadillac tax take effect? Is that good or bad for HSAs? I could certainly argue that both ways. What impact do HRAs, this new HRA rule, have on HSAs? There's a lot of questions there. The fact is, employers are always going to be dealing with trying to manage their costs. Going to a high deductible is the easiest way to reduce your premiums or control your premium increases. Trends and benefits, I've always said trends and benefits take off like an airplane, not like the space shuttle. I think the trend towards HSAs still hasn't reached cruising altitude. Maybe the growth is slowing down. That would be natural. The pressure among employers to do something is always going to be there.
It's not simply doing HSAs, it's all the things that Sander mentioned and didn't mention that employers are doing to control cost. I think this is going to be a key piece. Like I said before, with PPO deductibles increasing, I think it makes the HSA plans that much more attractive.
Thank you, Paul. Sander?
Makes sense. Gosh, if I had to look out 10 years, I see kind of a nirvana for health accounts and accounts in the U.S. The president's, I forget what the name of the council was, but they kind of delineated all this kind of best practices around what we should have done around accounts in the past. Save for health, save for retirement, save for education. Get rid of all of these nomenclatures, get rid of all the kind of the barriers that are out there to kind of help people think about limited purpose FSAs, HRAs. I mean, all these things, no one in their right mind would design it this way if you were trying to get people to do the right thing.
If we could use a little bit of behavioral science and behavioral economics to get people to do the right thing, I think we could help a lot of people in the U.S. I think that there could be some consensus around doing that, to try and help folks to maybe mandate or maybe automatically provide accounts in the healthcare and other areas for folks. The reality is we're kind of fighting in the trenches right now. It's a door-to-door battle, employer to employer, trying to get them to do the right thing in any given year based on their multi-year strategy, and we're doing the best we can. I think that regulatory-wise and as a country, we could do a lot better. I have an optimistic view for the future. I don't know if that'll come true or not, but I'll keep putting it out there. Good vibes.
Thanks, Sander. All right. We left a few minutes at the end so that any of you could ask questions of our expert panel. Please.
Raise your hand, we'll bring a mic to you.
Watch out. Let me be the first to ask that 8% question, but I know you touched on that. What did cause your projection to change so much in the FSA market, and why not HRAs? As a follow-up to that, you do have this new HRA rule. Does that change your view at all?
Great questions. For everyone who does it, to set it up, we do an annual study, and we look at each of those tax-advantaged accounts. Our last year's study, we had FSAs growing at 8%. The simple answer is, when we looked at that FSA number, it was not only on the kind of the healthcare FSA, but it was also on the limited purpose. It was really the total FSA card market, if you will, at that level. That had originally gone up from kind of previous years, and one of the reasons was is we saw a decrease in the HRAs. As I think about your next question, I think these gentlemen would be well-prepared. I do think it's going to have an impact. I think we already see some health plans that are organizing strategies around that.
I also think this is going to be an interesting area for me to watch as we go back to this retirement plan sort of channel. To me, that small business is also an optimum market for them simply because there's one decision-maker for 401K and benefits at these smaller companies. I'll be interested to see the push and pull between HRA and HSA, to be honest with you. I do think it'll have some impact. I do think we're probably a little bit down the road before we see it, but I'll let these gentlemen. Follow up?
I think it's going to be a while before we see an impact from the HRAs. It gives employers something they've wanted for decades, the ability to do a defined contribution health benefit. They could just give people the money, not have to worry about offering a plan, it's pre-tax. It works for their high-income employees. In this labor market, I don't see employers moving there quickly. I'm not sure we'll even hit the 800,000 number right away that the administration's come out with. Smaller employers and those that don't offer benefits may find it attractive right away. Large employers, I just doubt it. What gets put to the test is what employers do during the next recession. I'm an economist. No one will believe my predictions. I'll predict there'll be a recession. I won't tell you when.
Eventually.
won't tell you when. There will be. At that point, or maybe right afterwards, when the unemployment rate's still increasing, that's when you see employers moving to HRAs and saying, "I'm done with this. I'm getting out." That, I think, raises questions for HSAs. I think we're a ways away from that because, one, we have to hit the recession, and two, we have to get through it, and I think that's when you start to see the effect, if we see it at all. I don't know that we will. I think that's when it would happen, if it does.
If those HRAs are eligible on the exchanges or elsewhere to buy insurance policies, what type of insurance policies do you think folks are going to buy when they go to the open market? They're going to probably buy a lot of HSA-eligible plans. To the extent those HRAs are only eligible for premiums and not for medical expenses, we may see an explosion of both. There's a possibility. I think that the $500 carryover has impacted the ability for FSAs to continue to grow. It's kind of your default into the HSA next year if you have even a couple of bucks in there. You signed up for the FSA next year, regardless of whether you decided to or not, as opposed to having to elect it every year. I think that those are all positive trends on the FSA and HRA side.
Thanks. Richard, do we have time for one more question?
One more.
Eddie?
Thanks very much. Thinking about the payer market, it was interesting at the UnitedHealthcare Investor Day, I guess it was earlier this year. In their projected slides, I can't remember if it was three years or five years, they had no growth in high deductibles. I'm just trying to think through, for a payer, is there an advantage to not driving it? You see some payers doing it, but clearly for employers, there's a lot of benefit. I'm just trying to think through the dynamics and get your comments on, are there better growth drivers? Are employers pushing this more? Are payers pushing it? I guess the follow-up is, why would a payer be pushing against or projecting and thinking that they're not trying to drive high-deductible plans? Thanks.
I'll be happy to, but if you guys want to start, go ahead. I'm not familiar with their projections, but I would know, we get questions all the time, how many people are in HSA plans, how many HSAs are out there? When you look at the surveys trying to size the market and the number of people in the health plans, you don't find much growth from year to year. What those surveys are not taking into account is dis-enrollment from HSAs. Some people leave their plan. Either they don't like it anymore, or they change jobs, and it's not available. That's offsetting the growth into the plans because we are finding strong evidence of growth. I think as long as there's growth going in, you're going to see the number of accounts increasing.
You may not see the number of people enrolled in the plans increasing as fast, and that may be the dynamic they're picking up. I'm not familiar with what they presented, so I'm not sure if it's something else. You do see the number of HSAs growing each year faster, and that's because they represent the number of people that have ever been in an HSA plan.
Our data says the same thing. When we look back at our survey year-over-year, employers that have had HSAs for three or more years, they've had same-store growth for three years of 3% per year. If you had 30% enrollment to start, you're going to have 39% enrollment after three years on average in our large book of business. I think that's probably built in. On the other hand. Health plans didn't go into this willingly. It's complex. It's taking part of that total healthcare spend and allocating it somewhere else. It's kind of a different model.
Definity and Lumenos and employers kind of pushed health plans into this, the health plan said, "Well, that's working. Okay. Employers want it." I think the dynamic will be that the health plans will want to continue to deliver on those types of things that employers want to support. To date, employers still want to support getting people involved and informed with health accounts.
I'll just wrap it up. I didn't see that announcement either, I think the HSA fits into this whole engagement strategy that they have. When you think of an HRA, everything's automated. The member themselves, and I am an HRA member, have been for a long time, there's not a lot of engagement there. When they think of the health plans that we really talked about, now granted, it's not a line of business yet, it's a critical component to their member engagement strategy, which is really what they're trying to do is build that relationship, right? I think that's really where the strategic push is on this. I would say the corollary is, even though they don't own the financial account, they have a financial relationship, there could be some stickiness and retention to that aspect of it as well.
All right. I think that brings this panel to an end. I'd like to thank Mike and Paul and Sander for joining us, and again, all of you for your questions and your participation. I think it's break time.
Thank you.
We will take about a 10-minute break. Restrooms are just outside on this hallway and out this side. Please make sure you grab some breakfast, and we're going to do a quick mic change.
Good stuff.
[Break]
10 minutes goes really fast. You got about a two-minute more warning there.
Whoops. Here we go. Thank you.
I'm just wondering about the chairs, any kind of like All right.
As long as you don't need to engineer the.
Okay, everyone, we're going to go ahead and get started. You want to come back in?
This thing? Yeah, it is a little wobbly. Bill, do you-
I feel like we're going to get sunburnt from the back.
I'm a goner. If I fall, just go on without me. Okay.
Okay. We're going to go ahead and get started. We're going to turn it over to Ted Bloomberg, our Chief Operating Officer. Ted.
All right. Thank you, Richard. Can you all hear me in the back? I see that there's some coffee being refilled, which is good. We'll try to keep it high energy for you. As Richard mentioned, my name is Ted Bloomberg. I am the Chief Operating Officer here at HealthEquity, responsible for sales, marketing, product, technology, and operations. I have been at the company I'm the new guy still. I've been here for just under a year after spending 20 years of my career in financial services, half of which was spent at TD Ameritrade, was the biggest chunk. I am incredibly excited today to be joined up on stage by three, as Jon mentioned, incredible employer partners. We're so grateful that they agreed to come hang out with us for the day and tell their story in their own words.
You hear from Jon and from Darcy and Steve and others a lot about the HSA story. We thought we'd try to make it real for you by letting you listen to actual employers talk about their actual experience leveraging these services and deploying the products. We're really excited to do that. Similar to Bill, I am going to actually use my notes, so I make sure I don't screw up the introductions because I want to give these folks their due. I'll start right here. To my left is Jason Russell. Jason leads the North America Total Rewards team, overseeing comp benefits and wellness functions for the North American region at SAP. He's responsible for developing the health and benefits strategy for the U.S. and Canada and for overseeing the delivery of the fixed and variable pay programs. Prior to SAP, Jason spent over eight years at Amtrak.
I don't know if you saw there's three trains stuck in the tunnel under the Hudson River right now. They're probably NJ Transit trains, it's not Jason's fault anymore. Where he worked in various manager and director level roles, leading transformational efforts in finance comp and benefits. Some of his accomplishments include rolling out variable pay plans, pay for performance philosophy, which is near and dear to our hearts, introducing consumer-directed health plans and implementing a market-based salary structure. That's great. Next, to Jason's left, is Bill Delahanty from Raymond James. Bill joined Raymond James in September 2014 as the Senior Vice President of Total Rewards. His responsibilities include managing all areas of comp and benefits.
In 2018, Bill led the design and implementation of a high deductible health plan, only medical design, which we call, you've heard us talk about as full replace, transitioning 10,000 associates to that plan design. He's going to talk a lot about that because that was important. Oh, wow, those doors are coming down. They're super loud and actually that's kind of cool. Prior to joining Raymond James, Bill was the global leader of comp and benefits at Recall Corp in Atlanta, where he managed comp and benefits in 23 countries and helped drive a successful demerger, which I guess is code for a breakup, of the business from its Australian parent company.
Prior to that job, Bill had various comp and benefits leadership positions, including 14 years at Voya, he also served in comp leadership positions at Pepsi and was the senior executive compensation consultant at Towers Watson. Finally, Jennifer Lamons here from Edward Jones, thank you, is responsible for the health and welfare benefit programs offered to nearly 50,000 associates at Edward Jones. It says 49,000 here, but I feel like nearly 50 is better. Might be 50 by now. A Fortune 500 financial services organization that is proud to say they have offices in every zip code across the United States. For the 20th year, Edward Jones was named in the top 10 of the 100 best companies to work for by Fortune magazine, probably because they offer HSAs.
Jennifer oversees the development of new program strategies, financial performance, communication needs, and the internal administration of the benefit plan with an annual spend of half a billion dollars. Edward Jones adopted a consumer-driven medical plan in 2006. They were an early adopter, which Jennifer's going to talk about, of HSAs, almost concurrently with the legislation being passed. They went full replace in 2009. I'm going to stop there because I want her to tell you that story. That's it. Okay. The way we're going to structure this panel is I've asked each of these folks to tell you about their company's HSA journey in their own words for probably two or three minutes.
Then I have one or two follow-up questions for each of them that I'm dying to know the answer to. Then we're going to turn it over to you. Please make sure that you have questions for these folks. Remember, they're invited guests, so treat them nicely. Start thinking about what you want to know. With that, Jason, I'll turn it over to you.
Yeah. Thank you, Ted. Name's Jason Russell from SAP. For those of you that use SAP technology at your company, thank you. We appreciate your business. Hopefully have some really positive stories there. Taking a look from an HSA perspective, right? The journey at SAP, when we're a technology company, we're always looking to be innovative and to bring innovation to our employees, right? Because they're delivering innovation out to the marketplace every day. We were a pretty early adapter to the high deductible health plan in the HSA space back in, I guess, talk about recessions, back in 2008, 2009 was when we really started taking a look. It's been about 10 years that we've had high deductible health plans offered to our employees.
We had launched with them. At the time, there was a lot of education, a lot of effort to get employees to understand what consumerism meant, what a high deductible health plan meant, how that would change how they need to manage their personal finances, the role that HSA would play in that. Over the years, we've seen our balances grow little by little. Some of our employees have really captured and really focused in on that, like, "Hey, this is something more than just something to pay my current expenses." Along our journey, we did get to a point where people were with another partner. They saw that the technology wasn't what they wanted, right? Our employees reached out to me and said, "We need to move on.
We need a better solution, a better platform that can ultimately deliver a better experience." Back in 2016, we were looking. We said we want to find a partner that we can partner up with that can help deliver a better experience to our employees. We're at a point now where we're continuing to see the balances go up year after year. We don't, I say, have everybody 100% on board with contributing more than just their annual expenses. We're definitely messaging it out, trying to get our colleagues to see the value of HSA beyond just a tool for current expenses. That's kind of where we're at right now.
Excellent. Thank you. Bill?
Hopefully, most of you have recognized Raymond James. Just a quick background of the company. It's about 14,500 associates now. We've grown very quickly, probably doubled our headcount over the last 10 years or so. Obviously, in the wealth management space, based in St. Petersburg, Florida. In terms of the 14,500 associates, we have about 13,000 in the U.S., 1,200 in Canada, and a couple hundred other associates in Europe. It's primarily a U.S. organization. About $7 billion in revenues, $900 million in profit. 125 straight quarters of profitability. We're very proud of that. Culturally, very paternalistic organization. We always say we're paternalistic and proud of it. If you look at our benefit plans, you would definitely see that we have designed those plans with that concept or that philosophy in mind.
We're very reluctant to change the benefits unless we're very certain that it's going to be well-received by the associates, particularly the financial advisors, which is kind of the lifeblood of our organization. Whenever we make any substantial changes, we always road test any changes with the financial advisors to make sure that they're going to be accepting of the changes. We spend about $145 million a year in medical benefits. About $110 million is company spend, and the other 35 is employee spend. When I joined the organization in 2014, we had just completed the medical plan year, and our per head count costs had grown by 21%. At that point, the senior executive team was very concerned about where this was heading and whether we were really paying enough attention to the medical plan.
We really got the senior executives much more involved than they had historically been in terms of what we're doing in the medical space. We basically kept the plans as they were in 2014. We had a very rich PPO plan and an HSA plan. We had the HSA plan for a long time, actually, prior to 2014. We had 90% participation in the PPO plan and 10% in the HSA plan. I think others had talked earlier about the challenge of migrating associates from the rich plans to the high deductible plans, and we had that same issue. We did some back-office cost-cutting changes to the plan in terms of service provider consolidation, those kinds of things over the next few years, 2015 and '16. We actually saw a decrease in our costs at that point.
In 2016 and '17, our costs actually dropped by about 6% per year on the medical side. It was mostly due to service provider consolidation and some general plan design changes. Nothing real substantial. We thought in 2018 it'd actually be a great time to go full replacement. We thought that it would be good to do that in a year, or actually after several years of reductions in our medical costs, to go ahead and bite the bullet at that point and implement a full replacement arrangement. When we implemented it in 2018, we basically told associates, "Look, we're not doing this for cost savings reasons." Maybe long term, with the concept of consumerism, we would see some cost savings as people thought more about what they were doing in the healthcare industry in terms of their utilization of the industry.
We implemented it in 2018. Basically, we went out and told associates or discussed it with associates that the reason we're doing this is to get you guys more engaged in your healthcare to get you more aware of actual costs when you go to the doctor or get prescription drugs. It's not a $10 drug. It's probably a $300 drug. You're only seeing $10. We really want to get you involved. Essentially what we were saying is we're going to take costs that heretofore we managed on the backside that no one ever saw, and giving you that money up front and letting you guys figure out how best to manage the healthcare costs of your family and yourself, and to navigate the healthcare system. That's what we did in 2018, we're a year and a half in or so.
Awesome. Thank you. Jennifer, you want to tell us about EJ?
Certainly. Thank you all very much for having us here, since Edward Jones isn't on Wall Street, I'll share a little bit about our organization. We're nearing 100 years, as an organization, we've always been centered around the belief that individuals should have access to a financial advisor in their community to help them understand and meet their financial goals. While our firm has grown substantially over these 100 years, we are still rooted in the same strategic priorities. That is, first, we serve one client, and that is the serious long-term individual investor. Secondly, our investment philosophy is centered around quality and a well-diversified portfolio. Lastly, we work in partnerships, and relationships are key to our business. Through this time, we've definitely obtained many recognitions as a great place to do business as well as one to work.
Edward Jones is currently ranked as the top full-service investor satisfaction in the J.D. Power's Investment Satisfaction Study for 2019. As an associate of the firm, it is always great to see that we are consistently ranked in Fortune magazine's best place to do work, currently ranked number seven for 2019, and we've been on that prestigious list for over 20 years. In regards to our success in those rankings, it can all come down to the structure of our organization. We are a partnership, meaning we have over 24,000 limited partners that are all aligned to achieve our business goals and objectives of servicing our one client. That makes it a little bit more rewarding, and we're all focused on the same mission within the organization. Size-wise, we have just over $1.2 trillion of assets under care, serving over seven million clients.
I have the fortune to serve over 14,000 locations where our associates are located, literally every zip code of the country. Makes my job a little bit more daunting. We'll talk about that when we get to the engagement strategy. In regards to our medical program, we were early adopters. It was actually in 2006 when we introduced an HSA compatible high deductible health plan, and it was at the request of one of our financial advisors that came forward with the tie-in to our business objectives for our clients wanting to do the same for our associates. We saw very rapid adoption and migration from our PPO plan to the new HSA plan, so that 80% of them had migrated on their own by 2008. In 2009, we went full replacement, offering two different models of a high deductible health plan.
We phased out one of those in 2012. We've had a single plan all along since then, until January 1 of 2019, where we introduced a second one. Our deductibles under our consumer-driven health plan are tied to the HSA contribution limits. We are significantly higher in regards to the deductibles, but there's a significant trade-off for the amount of premiums that our associates pay for that coverage, and that's what we think has helped us with the migration over the years. Our second plan that we introduced in January was taking the deductibles even higher than the contribution limits based on the value that we saw in our HSA account balances. Our second plan has an individual deductible of $4,500 or a max family of $9,000.
Our plan, I think another factor that contributed to our success is what you heard from Jon earlier today is the Balance Booster. Edward Jones brought that product to market when we introduced the HSA compatible plan in 2006. The firm was willing to put forth the associates' annual contribution and the firm's match on January 1 should they have an expense that they would need in their healthcare. We didn't want to create avoidance of care because of lack of funding. We've had the Balance Booster, we call it payroll advance, since 2006, and each year we have roughly 30%-40% of our associates at one point or another throughout the year tap into that advance.
Due to system improvements and controls and reconciliations in place, the firm has not lost more money on the payroll advance than what we've collected back as forfeitures, in the traditional FSA account. The firm has not lost money on the payroll advance. Our HSA program now is just over $150 million. We have just over $78 million invested. We have eight active funds, four passive funds. We've embedded our HSA program inside our ERISA plan, recognizing we sit in the financial services industry. We want to obtain and maintain the fiduciary oversight of our own platform and our investment strategy.
We have a committee that consistently monitors the fund performance, fund selection, and also helps with the communication of our program, also helping with our engagement. We have just over 20% of our HSA account holders with an investment balance. Even better yet, when you look at those that are eligible to invest, we have 43%. We've been partnering with HealthEquity since January 1 of 2018.
Awesome. That was great. Thank you, all three of you. You're not here to hear from me. I just want to inject one piece of commentary before I ask a couple follow-up questions. Probably very few people spend as much time thinking about retirement planning as the team members at Raymond James and Edward Jones, and they're full replace, and they believe in HSAs. I just think that was important in case you were zoning out for the last 15 minutes to kind of hit that point, right? If an electrician tells you have faulty wiring, you should fix it. If I tell you have faulty wiring, you should ignore that feedback. I think it's important that they care about this offering. Jason, question for you.
Sure.
SAP has remarkable penetration and utilization and engagement of HSAs given the fact that they have other health plan options to choose from. We don't really see the level of penetration that you've been able to achieve among non full replace clients. I'd love to hear a little bit about how you got there.
Sure. Yeah. One of our big key tenets is they offer choice, and they give folks a choice in terms of what they do with their money, right? When I talk to my global colleagues outside the U.S., and you look at how benefits are offered there, flexibility, choice, kind of what we would consider cafeteria style, here's the money, go in and shop, is a lot of what colleagues globally see. When we were introducing the HSA high deductible health plans many years ago, the idea was to still offer choice. For some folks, the idea of having to put money into account, track the balance, submit receipts, they don't want to be bothered with it, right? Quite honestly.
They just like the traditional take whatever out of my paycheck even if it's a lot of money, I don't want to have to deal with that, right? We've continued, even to this day, 10-year journey, we still offer a traditional plan that folks can enroll in if they don't want to go in the direction of setting up an HSA or using high deductible health plans. The idea of choice was really important to us. We have offered a lot of education, a lot of communications to employees, talking about triple tax efficiency, the value of an HSA, how some will even say, "Fund the HSA before you even touch your 401 because of that." We've communicated a lot to our colleagues to get the message out.
We've been able to get a really high adoption, I think, because at SAP, there's a lot of really smart people. I always say, a lot of my colleagues could go work anywhere. We think that what's driven our really high adoption is that people are educated, and they're saying that, "You know what? This is a vehicle that I can take with me into retirement. I can maybe even fund everything out of pocket, put my receipts aside, and then pay myself out in retirement," and all the things Jon touched on at the beginning, right? We have colleagues that are doing that, right? They're thinking beyond just the here and now and more about long term, how do I save for my retirement and the health portion of that, right? I think that's how we've gotten a pretty high adoption without saying, "You have no other choice," right?
Yeah, that's great. Thank you, Jason. Bill, one of the exciting opportunities for me in preparing for this panel was I got to do a deep dive on these three businesses and really understand how both the business works, but also how our plan fits into their broader plan. The question I have for Bill is something that we wrestle with internally a lot, and they've kind of, maybe not cracked the code on, but they've made a lot of progress on, which is, how do you explain the value of an HSA to a relatively lower income plan participant in a way that makes it real for them and makes them want to participate and makes them want to proceed?
There's probably a plan design element, and an education element that I think that Bill and the folks at Raymond James have really started to address aggressively. Can you tell us a little bit about that?
Yeah, sure. When we decided to go down the path of full replacement, we obviously started a communication process probably six months prior to when we were going to go live. We got a fair amount of negative feedback, frankly, from particularly our lower paid associates saying, "How am I going to be able to go into these plans that have high deductibles when I have no money first day of the plan year?" We had already communicated what the plan design was going to be. It was going to be a $500 HSA company provided contribution if you're single, $1,000 if you're family. We had already communicated that. We got, as I said, a lot of negative feedback on that. We reconvened with the senior executive team, talked about it, and we decided to double the seed for our lowest paid population.
We basically bifurcate our population into four different income segments, and we charge premiums based on the income level in one of the four buckets that you fall in. Obviously, the highest paid employees pay the highest premiums, and the lowest paid people pay the lowest premiums. We do that thoughtfully because we've done a lot of surveying of associates, and if you ask a lower paid associate in general, what is your most important benefit that we offer? What do you perceive is to be the most important benefit? Almost 80% will say medical benefits because they're concerned about their ability to afford a big, catastrophic kind of a healthcare issue. We charge them much less for the benefits than the higher paid associates, and we doubled the seeding In terms of the HSA for the lowest-paid group.
Once we did that, it was kind of just lucky, to be honest with you. Had we come out with that design at the beginning, we probably would have gotten very little credit for it. Since we responded to it, we look like great people. It actually worked out very well.
Thanks. Just one piece of commentary. That thoughtfulness around plan design is basically why we have the relationship management function or account executive function that we have, because there's a lot that you can do with plan design that we don't think is particularly widely known and can really move the needle, as Bill just described. Sometimes better to be lucky than good in terms of the rollout. I'm actually going to take that away and tell people to roll out the wrong plan and then fix it. I guess I learned something new here today. Okay. Jennifer alluded to this data point, and you've probably heard Jon and Darcy talk about our investment penetration.
We have a little over 4% of our members invest, which we think is great, and we see the number growing relatively robustly, and we do a lot to grow it, but obviously, a lot of room to go. Jennifer alluded to the fact that Edward Jones has 20% of her population is investing their HSA, which is five times what we think is probably the industry best. We don't know for sure. Not only that, but 43% of those that are eligible that have a high enough balance to invest are doing so. One word question. How?
Very specific messaging, I think, is key to driving the behavior of those that are the savers in the Health Savings Account program. The beginning of our journey in this space was more about understanding how to use the benefit, how to use the new type of medical care. Once we got that understanding, it was really then turning the story around how important this account can be for you for the future, and highlighting the savings opportunities, and then thus the investments. I'm fortunate being in the investment industry, our folks get the importance of planning for retirement. Obviously, as I indicated, it was someone that came to us looking for this type of account. Even as the balances begin to accumulate over time, we were able to target messaging to those once they hit the $1,000 account balance threshold to get them invested.
Our oversight of our funds, we look at them quarterly. We've had opportunities to exchange our funds. That's another communication point. We do an annual total reward statement. We highlight target messaging on there. It's very specific to those, HealthEquity has been a great partner coming up with strategies to help us move people from the spenders to the savers to the savvy savers over time, and that's something we're rolling out as our partnership evolves over time.
We might have just learned a marketing lesson there. I like savvy savers. We don't use that terminology, but we might after today. Before I open it up, I'm going to ask one bonus question to Jason. You've probably seen us publicly announce three partnerships with 401K record keepers, one of whom is Vanguard, who we love and who usually come to this event, but we've sort of been leveraging them a lot lately, so we let them skate on this one. SAP is going to be one of the first organizations that we activate our partnership with Vanguard in that health-wealth connection, which we call Wealthview.
I can tell you what's exciting about it to me, that's less interesting than, I'm just kind of curious, Jason, if you could talk a little bit about why you're excited to light up this Wealthview connection and partnership with Vanguard and what you hope to see.
Yeah. No, thank you. It is really exciting. It's been many months in the making, the idea, as we heard earlier, of taking your HSA and viewing it as more than just a current bill-paying tool, but as something that you can leverage through retirement. We're also partnered with Vanguard, we're going to have the view where an employee can log in and through the HSA side, through the HealthEquity side, see what's going on at Vanguard and do the reverse, right? Be at Vanguard and get some nudges to say, "Hey, have you taken a look at your HSA?
Do you know you could contribute more?" Really helping for us get that message out to our employees in the way that we like, in that very positive, proactive, trying to nudge you to do the right thing, or get yourself in a position where you're ready for retirement. Super excited to see that come to fruition, excited that we've been talking about doing some innovative ways to get the messaging out to employees, right? One of my biggest challenges at SAP is reaching all of my colleagues. Our mission is to help the world run better and improve people's lives, we have people everywhere trying to do that. When you message out to people, a lot of times they're busy, right? We're continually thinking of ways to reach people.
When partnering up with HealthEquity, they see, okay, we have a platform that we use internally, Slack. We have 60,000 people, over 100,000 employees leveraging it to communicate. We're not on it, right? From an HR perspective, how do we take something really cool like this and maybe message that, in another channel of reaching people, right? Super excited about the partnership and where it's going, and then also thinking about innovative ways we can communicate out to all of our employees and get them excited as well.
Awesome. Thank you. Richard's waving a microphone, which I think means it's your turn.
We have time for maybe one, maybe two questions.
Thanks. I'm not sure if this is a question. This is maybe for you, Jennifer, across the board. When I think about one of the challenges for employees is because healthcare is paid for through your paycheck, it's a once-a-year reset. You sort of notice in January your paycheck's different, you forget about it for the rest of the year. I'm always amazed when I look at benefit plans, when I look every year It's not particularly clear what the total cost is, and it certainly doesn't show what was my cost last year, what's my cost this year if I change plans.
I think you mentioned, Jennifer Lamons, you show an end of year sort of rewards. Have any of you guys looked at doing quarterly or annual, this is what you got this year versus last year, and how you save to drive that? I sort of feel like, if people had to write a check every two weeks for their healthcare, it'd be 100% adoption of high deductible health plans. How do you get the message out? Is there a way to do that quarterly or annually where you can really compare? It's really hard to look at what was I paying this year, what was I paying last year, and if you've done that, does that change decision behavior? Thanks.
Certainly. We've partnered with an organization to help us with a plan comparison tool that can upload the individual's actual experience that they've had in the prior year as they're making their selection of the plan for the next year. They know the total cost of care, and that's been very key to our messaging as well. You can't look at healthcare as just what you're paying out of pocket. You have to add together the premiums that you're paying for that as well. Within that plan comparison tool, they will see what their premium elections are, as well as what their expenses have been in the past year. If they have any upcoming planned events, medical events, they have the opportunity to scale that price point up, and it's specific enough to look at the healthcare costs within their geographic area.
That can vary so greatly when I'm in Alaska versus the East Coast. That's been very helpful to our individuals, and it was imperative as we rolled out this even higher deductible health plan this past year. At first, we tripled the amount of enrollment in that higher health plan. At first, I was very concerned because I was worried people just saw the lower premiums. Looking at our plan comparison tool, we had over 100,000 hits on that tool, making me feel like they were making well-informed decisions on the plan that they were going into.
Yeah. I can jump in. We actually have a very similar arrangement, sounds like, in terms of the plan comparison tool. I guess on your question, we also do annual total reward statements, and there's comparisons between last year, this year, et cetera. I will tell you this. You can talk to employees all you want about how much the employer's contributing in terms of medical benefits. They don't really care. They care a lot more about retirement benefits and those kinds of things. They think, "Hey, that's what your obligation is, and so thanks, but it's just an expectation.
Maybe chiming in real quick. Part of our success, too, has been honing in on the messaging that we're a partnership, so we all reap in the rewards of the success of the organization. If we spend less on our medical, then that's more money as a self-insured employer that's going back to their variable compensation, to our retirement programs, and to our partnership distributions. They've solely bought into that, and that's shared with them in that annual total reward statement as well.
I would just add, we do also similarly offer decision support tools. Every year people can see, if I were to choose, and we load it up with actual claims from the prior year so people can see, "Well, if I were to go from plan A to plan B and had a similar year last year, what would that impact be in terms of my out-of-pocket?" It does drive behavior. In fact, one year we put it in, nothing else changed, and we saw 400 people navigate from that traditional plan I was talking about to one of the consumer-directed plans, just because it was like, "Oh, well, this doesn't make sense financially. Why have I been doing this?" People made that shift. To your point, I think empowering employees with decision support tools really helps drive where they end up going.
Thank you for the question. Richard's giving me the hook sign, which I assume means that we're ready for Steve. Is that right? Stephanie. I just, before we turn it over to them, I just want to again thank the three of you so much for taking time out of your very busy schedule to come share your experience and your journey with us. For those of you in the audience, if you didn't have an opportunity to ask a question, I think that you're all sticking around for lunch, so you can go find them if you have a question for them. Thank you. Now, where'd they go? There's Steve.
Coming in over there. Thank you very much.
Oh, sure.
Thank you.
Thanks, everybody.
Thank you.
Then we'll get Steve. Should be just coming in. We'll grab Steve and Stephanie, and then we'll start the last panel.
Oh, thank you.
You're done. That's why.
You're up.
I'm glad you're on.
Thank you again for coming.
All right.
Good job. You are so good.
Before lunch, thank you for b eing with us today. To kick this off, next Wednesday and Thursday in Miami, 20 contenders for the Democratic nomination will meet to kick off the drive for the 2020 election. A USA Today/Suffolk University poll yesterday said, shockingly, that only 4% of the respondents of the poll actually want to hear the name Donald Trump in the debate. Healthcare was the top response for a majority of the respondents. On Monday of this week, I was with our sales team, and we were meeting with a large retail employer. The leader of benefits asked me an interesting question. He said, "How can you," speaking to HealthEquity, "help us communicate the best way for especially our lower income folks to stretch their healthcare dollars?
We love that question. Hopefully, if there's one thing you've learned from interacting with HealthEquity over the years, it's that we love to educate folks on how they can stretch their money. We at HealthEquity have always believed that this health savings account is a disruptive innovation that can truly help people stretch their healthcare dollars today and also save them long-term for retirement. Last week, the Democratic-led House Ways and Means Committee met to debate the proposed Medicare for All legislation. CNN reported after the meeting, quote, "Progressive Democrats cheered when House Ways and Means Committee Chairman Richard Neal agreed to hold a hearing on universal health coverage." Neal opened the historic hearing praising the Affordable Care Act and also raised concerns about sweeping overhaul proposals such as Medicare for All.
With me today, I'm pleased to introduce you to someone that can actually shed some light on this craziness in Washington, D.C. Stephanie Cutter is a founding partner of Precision Strategies. It's an integrated strategy and marketing firm in Washington, D.C., and New York City. Stephanie has been called, quote, "One of the most prominent voices in the Democratic Party and one of its top strategists and crisis managers" by Politico. The New York Times called her, quote, "The polished, sometimes scarily organized strategist who gets things done and who has a long and favorable reputation with some of the most influential journalists and opinion makers in Washington, D.C." GQ named her one of the 50 most powerful people in Washington, D.C. Stephanie served as the deputy campaign manager for President Barack Obama's 2012 re-election campaign.
She also served in various senior positions with the Obama administration and campaign, and this included managing the president's messaging strategy and issue development in the White House. She also served as First Lady Michelle Obama's chief of staff. My daughter just read Michelle's book, and she loved it. Lauren, Stephanie's famous. Stephanie also served as counselor to Treasury Secretary Tim Geithner. On a personal note, I still remember on the morning of November 6, 2012, I was watching the talking heads talk about the election turnout for the day, and they were interviewing Stephanie. I asked her about this, and she didn't really remember it, but I remember it. It's burned into my memory. Someone asked her, they said why President Obama was playing basketball on the day of the election while the Romney team was on a plane headed to Ohio.
I still remember Stephanie's articulate response. She said, "The last thing you want to be doing on election day is sitting on an airplane. You need to be at your post getting the vote out." Obviously, I think her answer was fantastic, and I think the election results spoke for itself. With that, I was going to say, Jon Kessler, when you do decide to run, you need to hire Stephanie. When you do decide to run He announced that he was not announcing his candidacy earlier today, but hire Stephanie.
Yes.
Anyway, with that, we have a few minutes here with Stephanie. I would like her to give a few remarks as to what she thinks is the political environment, and then we'd like to open up for Q&A. Stephanie.
Thank you, Steve. I really appreciate you asking me to come up here. I had the opportunity to sit over there and listen to some of the discussion and the panel before us, and it's a pretty impressive discussion. Thank you for having me. As Steve said, I run a company now called Precision, that it's an integrated agency that brings digital data communication strategies together to build campaigns, not just for candidates, but for companies and movements, sports teams, you name it. We look at a lot of data all the time. What Steve said about healthcare being front of mind for voters is absolutely true. If you look back to probably for the last 10 years, healthcare has been a driving factor in most elections since the Affordable Care Act was passed.
In 2010, it was the big reason Democrats I guess we lost the House in 2010. In 2012, it was a reason that people reelected President Obama because as much as the Affordable Care Act was unpopular, nobody wanted to repeal it. They wanted to improve it, fix what was wrong. The idea of repeal and going through that whole debate again to put a healthcare system in place was really distressing to voters on both sides of the aisle, including a good percentage of Republican voters. 2016, the idea of repeal was still very much a Republican agenda item. President Trump, or then candidate Trump, made big promises of what he would do to get rid of the Affordable Care Act and ensure that everybody got healthcare. I don't need to tell you how all that played out, we're still debating it.
The Affordable Care Act has been the subject of debate for 10 years. It is the fact that Republicans did try to repeal under President Trump in 2017 was the single biggest factor of record turnout in 2018 amongst Democratic voters, which allowed Democrats to take back the House. You can see it goes back and forth. Where are we today? We are number one, Donald Trump has made it clear that one of the first things he's going to do after he gets reelected is to, again, repeal the Affordable Care Act. He said that on ABC on Sunday night. Number two, Democrats want him to be campaigning on that because it drives out not just Democratic base voters, but independent voters. You can criticize the healthcare system, people don't want to get rid of their healthcare. That debate is continuing.
There's also a pending court case, which has basically ground most things to a halt in the House and Senate. There's a case working its way up from Texas to the Fifth Circuit to rule the Affordable Care Act unconstitutional. I don't need to go into the details of that, they're trying to get it back up to the Supreme Court again. It will likely get to the Supreme Court in 2020. Nobody knows how the Court will come down because the framework has changed so much since 2012 when the last time they looked at this issue. That will be one of the greatest disruptors in the presidential election. What does that mean for a lot of what's being promised on the campaign trail? As Steve mentioned, House Democrats are having a hearing on Medicare for All.
Most of the candidates on the Democratic side, all 24 of them, I don't know if anybody has joined in the last 24 hours have either commented on Medicare for All or have signed onto it. What does that really mean? That's a really good question, because nobody knows exactly what Medicare for All means. The only one with a very distinct Medicare for All plan out there is Bernie Sanders. He wants to replace the entire healthcare system, including Medicare, and put a universal plan in place along the lines of Medicare for everybody. That's not going to happen. First of all, I don't think Bernie will be president. Don't tweet that because there'll be a lot of hate on my Twitter. I don't think he's going to be the President of the United States.
Number two, I know this from personal experience in passing the Affordable Care Act, people want their healthcare to improve. They don't want you to take it away. The single biggest mistake we made in passing the Affordable Care Act is making a promise that if you like your healthcare, you can keep it. Because healthcare largely dealt with the individual market, Affordable Care Act largely dealt with the individual market in terms of putting new plans in place. There's lots of turnover every year in the individual market because health plans are coming in and out of that market. People change plans because it's not tied to employer coverage. The idea that you could keep your plan over the course of years in the individual market just wasn't possible given the market dynamics, which created lots of problems for the Obama administration.
Number one, people don't want to get rid of their plans. Number two, Medicare is the most popular healthcare program in the country. Seniors, extremely important political force in this country, organized by AARP, will have a lot to say if anybody starts disrupting their Medicare. The other issue is a lot of Medicare is actually moving out of the government program into Medicare Advantage, into private plans. It's about 30 million people right now, maybe about 30%. I think over the next decade, that is projected to explode. If you're going to have Medicare for All in a Bernie style system, all of that goes away. I just have a hard time believing, number one, that the electorate would let that happen. Number two, knowing how hard it was to get the Affordable Care Act through Congress. We needed 60 votes in the Senate.
To pass anything like this, you need 60 votes, which means that we would need 60 Democrats in the Senate, 60 Democrats that would be for Medicare for All. We're nowhere near that right now. We're 47. We have to win three back to take back the majority. The idea about us having 13 additional Senate seats in this election or even the election after that's political malpractice to project that. Even if we do get 13 additional Democratic seats, in order to get to that number, you're electing some pretty conservative Democrats who will not be for Medicare for All. That's the political reality of it. Now, what does that mean in terms of the reforms that are possible? If I'm filibustering here and you want to just interrupt me, please feel free.
No, I think it's fantastic. Richard's in charge of the time, but I think we're doing good.
What is possible? Some of the candidates have a Medicare expansion idea where you can opt into Medicare at a lower age than you're currently able to do it. That's been an idea that's been around for a long time. I worked for Ted Kennedy for many years. That was originally his idea. Then there's just the idea of a public option, keeping the private market in place, keeping Medicare in place, but allowing for a public option, which may or may not be called Medicare for younger populations. Are some things like that doable? If you take the politics of ACA out of this, because that is what is preventing right now people from coming together to pass bipartisan reforms.
The idea that ACA may be repealed through the courts, the president running on repeal, the idea that Republicans attempted repeal, had attempted it in the House side when they controlled the House 45, 50 times unsuccessfully. That hangs over the idea of bipartisanship. Here's where there is agreement, and you do see, for instance, in the Senate, Senator Alexander, the chair of the Health Committee, and Patty Murray, the ranking member of the Health Committee, have put out a healthcare bill that has fixes to the ACA that expands coverage. Reinstalls some subsidies that Donald Trump had taken away, addresses things like surprise billing, which is really important for something like Health Savings Accounts. Attempts to reduce cost. Those are the kinds of things that Democrats and Republicans do agree on.
The idea of it moving over the course of the next 18 months, is probably unlikely given the political dynamics of the ACA. Nobody wants to give somebody else an advantage of it. Democrats don't want Republicans to be made whole by moving something on healthcare reform and improving their standing on healthcare reform. Republicans don't want to move off of all-out repeal because of their base. They're stuck in this political logjam. After 2020, depending upon what happens with healthcare being the number one thing that's driving people to the polls, that could change. President Obama used to call it breaking the fever. We keep waiting for that fever to be broken. It's possible, depending upon the actual results of the 2020 election, which I'm not going to predict.
It's complicated.
It's complicated.
I have one question for you, and then would love to have some questions from the audience. Richard, can you just do a time check? Because I know we had a little bit of Q&A after a bit.
Yeah. We've got 10, 12 minutes.
Perfect. Here's the one question I had is that, now I've been around long enough to know that in the run-up to the ACA, this was 2008, 2009, and then it was actually passed in April of 2010?
March of 2010. March 23rd.
March 23rd. She was there for the signing, I'm sure. I remember our current leading candidate on the Democratic side's comment about it being a big blanket-
A deal
big deal. We were thinking, "Oh, this is a big deal for us, too, at HealthEquity," because we didn't know what was going to come out regarding HSAs.
A lot of you don't know this, but HSAs was a bipartisan effort that began actually back in 1992. Three Democrats, two Republicans wrote the first letter that we can find to the Senate Finance Committee saying, "Why not let people have money that has the same tax advantages as you would give if you gave that money to an insurance company?" It was Tom Daschle and Sam Nunn and some moderate Democrats and a couple of Republicans. That being said, we did fear that HSAs maybe had become a little partisan. Because the Bush administration passed them back in 2003. We were thrilled when we saw the text of Obamacare, and it came out, and it really did nothing to hurt HSAs.
There was a cosmetic thing or two, but generally, it supported them and said, as long as your plan is HSA qualified, it counts as credible coverage under Obamacare. That being said, would you give us a little bit of inside baseball? You were there. Were people saying, "We got to trash HSAs just to stick it to the Republicans?" What is the tenor around HSAs if you're a mainstream Democratic leader?
I can tell you what we were trying to do. The way healthcare reform started in the Obama administration was very bipartisan. I'm not sure if everybody remembers the summer of 2009. I will never forget it. It was basically the summer from hell. We had been conducting bipartisan hearings with Senator Grassley, who was the chair of the Finance Committee, a Republican, and Senator Baucus, who was the ranking on the Finance Committee for months in developing a bipartisan plan. Much of the Affordable Care Act is modeled after a Republican plan that passed in Massachusetts and ideas that had come out of the Heritage Foundation. Part of that also included healthcare savings accounts. It was one of the ideas that had bipartisan support because it addressed a lot of issues.
Number one, it empowered you in making your own healthcare decisions, your own financial healthcare decisions. Number two, it helps people cover costs. I think there was a misbranding amongst Democrats of what HSAs are. The average income now, years after people have been using HSAs, and the adoption has been expanding and expanding. The average income for an HSA holder, and correct me if I'm wrong, is 57,000?
I think so. Jon's the economist. Is that right?
It's close.
Close enough, he says.
Close enough. Okay.
Yep.
Certainly not rich people. Most people at $57,000, even if you're an individual income, are living largely paycheck to paycheck. If you get a big medical expense, that's a big problem for you. You're either putting it on a credit card or delinquent in your payments. If you have an HSA, it gives you the ability to pay for it, and it's economical with tax savings. The idea of that was very appealing to moderate Democrats, and most of the Republican Party.
As long as it was part of a larger reform where HSAs weren't the only answer to the healthcare issues in this country, and it was part of making it more affordable for people, it was broadly appealable to the entire Democratic Party, which is why we put it into the Affordable Care Act, and it passed, and it still maintains that broad bipartisan appeal. That was the thinking.
That's helpful. Thank you. You've got a few minutes. You need to have a question. Yes, sir.
healthcare. It's probably reasonable to believe that you would lose a lot of centrist Democrats away from those candidates on the- number one topic- number one topic of the country should they push hard on what looks like the Sanders platform.
Yeah. I think if you watch the debate next week, you're going to hear a lot of language about keeping private insurance. If you remember, in one of the first CNN town halls, with Senator Harris from California, she made an offhand comment, "Private insurance, we'll get rid of that." She took a lot of heat, and she actually backed away from that. After that, just before that, Bernie had put out his Medicare-for-all plan. Everybody was signing on to it really fast, not looking at the details. Senator Harris made that comment about getting rid of private insurance. She got a lot of heat for it. You slowly saw a lot of candidates tempering the remarks about private insurance.
If you look at the actual plans that they've put forward to the extent that anybody has put detail around Medicare-for-all, again, I'm not talking about Bernie, who is way over here. Everybody else is largely over here, where it's a hybrid system. You're either lowering the age bracket for Medicare to allow people to opt in earlier if they want to, but you're not requiring anybody to, or you're providing some sort of another public option that may or may not be Medicare. I think everybody sees through their own data that once you start talking about taking away private healthcare, also when you start talking about how you pay for a Medicare-for-all system, support for it goes way down. A lot of the appeal of Medicare-for-all is just the name Medicare.
Medicare is a very popular program, not just with seniors, but everybody sees their parents on Medicare, pays their Medicare taxes, thinks that program is going to be there for them. Just the branding of Medicare-for-all gives it a few percentage points of popularity. Once you start talking about the details, those numbers go way down. Everybody sees that data, which is why I think next week you'll see that language being tempered a lot, to a more realistic version. You have Joe Biden over here, talking about improving the Affordable Care Act and making some changes to the Affordable Care Act to get to universal coverage. You have the middle-of-the-road folks who are looking to expand Medicare but not getting rid of private health insurance.
You have Bernie, who wants to get rid of it all and create a single government program under Medicare. I think with the exception of Bernie and a few others who are really not in the top five of candidates running, you're going to hear them talk about private healthcare next week.
Wonderful. Thank you.
Steve? Question back there.
Yeah. Thank you. Greg Peters from Raymond James. Steve, your comments about this era gone by about bipartisan, Stephanie, you too, talking about an era where there used to be bipartisan effort, doesn't seem like it's realistic today. It may be, it doesn't seem like it's realistic. When the Democratic Party comes out talks about high-deductible health plans, it's usually on a derogatory basis. One of the perceptions that we fight when we're an advocate for HealthEquity or for HSAs is the impression that some have that high-deductible health plans are evil for the consumer. Maybe you've talked about Medicare for all, you've talked about- a focus on healthcare. Can you talk about the perspective of high-deductible health plans? That's part of the equation.
Sure.
Thank you.
Well, the Affordable Care Act does allow for high deductible. It gives you choice. There is a high deductible option in there. I think when Democrats talk about high deductible, they're, I'm just going to use the vernacular they've used. They talk about junk plans, where it's such a high deductible and doesn't really provide any coverage that it's not really a healthcare plan. Those under the law, the Trump administration is trying to, what his are called HRAs? They're trying to get back to that kind of market. They just put out a rule, I believe, and I'm sure.
There are others that know more about this, that allow for very high deductible plans without the consumer benefits required under the Affordable Care Act. That'll get challenged under the ACA, and who knows whether they'll continue to exist. When Democrats talk about high deductible, that's what they're talking about. They're not talking about any high deductible plan. There is high deductible options under the Affordable Care Act. There are high deductible plans outside of the Affordable Care Act. As long as they provide some basic benefits like preventive care that's not out of pocket, no preexisting condition discrimination or age rating or lifetime limits, those kinds of things, they exist. Lots of people are opting for them because premiums have gone up for the gold and the silver plans under ACA so much. They exist.
I think that negativity that you hear was used a lot in getting ACA passed. In fighting any plan, which there's not really been much, any plan that has been put on the table as part of repeal of ACA. In reality, people are buying high-deductible plans. I don't see that changing. I don't see that changing also because in order to change that, Democrats would be taking a plan away from someone.
Greg, I think it's a narrative problem. We have a new CMO, and I bug him all the time, Adam, we need to change the narrative. Right? These deductibles that most of our all these employers who were on the stage a few minutes ago have, are actually low deductibles relative to what other folks are getting out there. We need to do a better job of changing the narrative.
Yeah.
I always say, "How can we change the world?" I know we had Richard, you're in charge of the questions. Do we have time for two more? Because I know. Okay, go ahead.
Thank you. Rick Roberts, Vulcan Capital. There was legislation before the House right before the election allowing for the doubling of HSA contributions.
This is part of repeal and replace.
Is there any chance that that's going through anytime soon? What's the status there?
That was part of the House repeal and replace?
Yeah. They embedded doubling HSAs and allowing HSAs for Medicare and things like that. Some things that are important to us. We've taken the approach, Stephanie, typically that expanding the market by allowing preventative care and Medicare options, more important than doubling the amount you can put in. In the repeal and replace legislation, they did put in a provision to double the amount, which I've found kind of ticks off Democrats because it's like, "There you go. Giving it to the rich guys again." What-
Yeah. Well, anything you put in a repeal and replace law is going to piss off Democrats. I don't think it's far-fetched for if and when healthcare legislation moves. I don't think it's possible in the near term, but it's possible once we get the political hangover of the Affordable Care Act out of the way, which could be after this next court case moves through the system. The Supreme Court won't hear it until 2020. It could be after the next election. There could be an awakening that both parties need it to maintain their base in the 2020 election. Who knows? I do see that HSAs, there is still strong bipartisan appeal for it as part of an overarching package of reform.
When we were passing the Affordable Care Act, and I know we want to get some more questions, I won't filibuster this, but just as a framework, when we were passing the ACA, we wanted to stabilize the marketplace and begin to figure out how to reduce costs. Once we passed it, we have been in a political gamesmanship ever since. We've never really been able to do the delivery reforms, the cost reductions, the things that we needed to do to bring costs into control. The ACA does some of it, but it really deferred those debates until later. ACA was the first step, and we always thought we'd come back and do cost.
There is still very strong bipartisan support to come back and do something on cost. If you look at where there's bipartisan support now, it's the surprise billing, it's drug prices, it's anything having to do with cost. That, I think gives you a lot of opening for what you want to achieve through potential additional reform.
That's great stuff. We love transparency and all of that. Go ahead, Steve.
Hi. Steven Wardell with Chardan Capital Markets. This is a related question, which is just at any given moment, there are processes in motion on Capitol Hill to affect tax-advantaged accounts. It could be expanding eligibility or changing the tax status or increasing the benefits. Are there any of these that you see as realistic in, you call it the next two to three years, that would arrive with bipartisan support?
You see it to affect them positively or negatively? Or either?
Yeah. Usually they're positive legislative movements, sometimes negative. Are there any that you see in the near future would have bipartisan support?
That's hard for me to say. I think. Do you want to?
I was going to say, we do spend a lot of time. We've made a decided effort, Stephanie and I didn't prep that much for the call. Jon, our CEO, who worked in D.C. for many years, he calls himself a political atheist. He says it's not that he doesn't care, he just doesn't believe. He worked for the H.W. Bush administration, then he worked for the Clinton administration, and he's really struggled. We finally said, "Look, this is important stuff. This is important stuff to all of you. It's important stuff to all of our members. It's important stuff to our 45,000 employers and our partners." We've tripled, quadrupled down. We made a big investment this year. We're going to continue to increase our investment in D.C. We have Bill West, who's kind of my partner in crime.
He's there every other week. We've hired a top-notch lobbying firm to help us with this. What they're saying when they're out talking to these Look, we started this year, totally different approach. We started with the Democratic offices, we said, "What do you need? What do you want for HSAs to be better?" It's pretty clear. We want you to cover things like diabetic meds. We said, "I know, but we need your help, right?" Because the law is a little bit opaque on that issue.
We're working on that stuff, and we think that the top three that we've always talked about that would have the biggest appeal would be covering the expansion, allowing people to have more coverage, then allowing people to go into Medicare, and then just fixing little things like it doesn't make sense that you can go to a free medical clinic if you're in a traditional plan, but you have to pay to go to your in-house medical clinic if you're in an HSA plan. Those are these tweaks we're working on. Stephanie, we'd love to continue to dialogue with you because we are doing a lot of work. Steve, I can tell you from our experience that when we talk to Democrats or Republicans, they're like, "In the right deal," and maybe you can kind of finish the concept. It's got to be the right deal.
Yeah.
Right? This is all quid pro quo.
Right.
Isn't that typically the way it works out is quid pro quo?
Sure.
You get a deal with.
I don't know what you think about this, but one of the areas that there is possible movement, because nobody wants to be outdone by the other side, is drug prices.
Oh, yeah.
You could very well foresee some sort of drug price reform passing over the next 18 months, as part of drug price reform, some technical changes, I would call them technical because you're more easily to get this done.
Yes
to HSAs as part of that to help people pay their drug costs. There are different pathways to get it done, again, anything having to do with cost, there is bipartisan support around it. It's just a matter of whether there's political will to get it done. That is an area that I think there is political will because it is I saw some recent polling where the most unpopular thing right now are elected officials in the country. The only thing that outdoes them are drug companies right now.
Well, a lot of these folks may be invested in drug companies.
Don't not invest.
Let me tell you, my perspective is the consumer has to be the most important constituent here. That's the beauty of the Health Savings Account is it puts the money in the consumer's hand. It gives them the incentive to make better choices. Look, I've always been frustrated. I had one time a senior level meeting with a pharmaceutical company, and it was kind of this weird discussion. It was kind of like, "Well, can't we like give you some rebates to give to the doctors to put them on?" I'm like, "No, that doesn't work that way. Just give the consumers a better deal on the drugs, and then they'll be able to save more money. And then they'll be able to grow their account balance." It's that easy.
I think from our perspective, if it helps the consumer, Stephanie, we would love to support legislation where we could help the consumer by getting them a better deal on drugs and other services and also letting them put more money in their HSA. Are we out of time?
Yes.
Okay.
Thank you, Stephanie.
Thank you, Stephanie for
Yeah. Thank you
Much for making the trip. She battled the airlines and the rain and everything, and she made it here from D.C., so thank you.
Yeah. Thank you.
Thank you very much. Steve, stay there.
Okay.
Jon, come on up. Darcy, come on up.
Thank you.
Thank you. Take care.
Thank you. Thanks very much.
Yeah, thanks.
Appreciate it. Thank you.
Where's Darcy?
I'm going to sit over here on this side.
Right in the middle.
Hi, everybody.
You guys want to say any wrap up thing, or are you just fine with the questions?
No, why don't we go to questions?
One right in the middle. Oh, in the back. There we go. Well, actually, Greg's already asked.
Right. If we're going to start with Greg, we'll never get to anyone else.
My 14-part question. I have to defend myself. The interest rate environment since the beginning of this year has changed, and one of the recurring questions we're hearing from investors is around what's going on with the expectation around the yield on cash AUM going up, not only for this year but when we look to the next fiscal year. Maybe you could provide some clarity around your expectations around that for the next 18 months, it would be helpful.
Yeah. I'll offer a bit of color and then hand the mic to Darcy. Look, Greg, we started the presentation talking a little bit about partnership, and I think, boy, this is an area where it's paying off, and we don't spend a lot of time talking about this in what we do, but the ability to have conversations beginning in the spring and now into the summer with our financial institution partners, our depository partners, as we call them, about what their needs are going into the fall and so forth and how they're thinking about the asset side, meaning the lending side, as we expect to be placing new money next year.
It's just a really interesting dynamic, and we're very fortunate to be able to, at this point, have a group of partners that have been with us, many of them going all the way back as far as a decade. From my perspective, the results of those conversations thus far reflect the fact that while there is a lot of turbulence in the treasury market and so forth, and that's being driven in part by, to the extent I understand any of this, by macroeconomic policy globally and so on and so forth, that the American borrower, and particularly the American commercial borrower, remains very healthy. Main Street borrowers are there, and that's ultimately where this money goes. We've provided guidance for the current year.
We've said that remains That we would expect that were we placing new money this year, that we would be placing it on average, given our duration and so forth, at rates above our current guidance, implying that that number should go up next year. There's nothing in my view in the early conversations that we've had with folks about next year that would lead me otherwise. Are people aware of the broader interest rate environment? Of course they are. One of the nice things about dealing with institutions that actually lend money to Main Street directly is that you end up with the Main Street perspective, and as we all know, at the moment, Main Street is very healthy. With that, I'll just turn it over to Darcy.
Thanks. I've answered this question many times for many of you before. Over 12 years ago when I started at HealthEquity, our gross yield was over 5%, and our NIM was somewhere around 350 or so. As rates came down precipitously in the 2008, 2009 timeframe, our yields were coming down, but we don't follow a spot rate. Like the Fed changes rates. They went down to under 25 basis points back then. The lowest gross yield that we got down to was in the low 150s, if you'll recall. As we became public, we made decisions. As we had grown our asset base, we started adding more and more depository banks, and we started laddering out our depositories into multi-year contracts.
Generally, they're placed between three and five years, and we have a particular market that now is our partners, and they have an appetite. We can go to them at any one point in time now and say, "Hey, we're going to have new money come this next enrollment season coming through. We're going to have some expiring contracts that we're going to have to refill, and we're going to have some new assets coming in that we're going to need to place. What's your appetite?" We don't ever price those until we actually place the contracts, which will happen in the December, January timeframe. We can talk with them and have a dialogue both on capacity and on rate.
When we went public, we made a decision that we're not trying to maximize the rate that we can get in any one quarter or any one period. What we are trying to do is deliver a laddered and a consistent yield and revenue stream that we can tell you about and that we can plan around. The way that it has worked out for us because of our growth and of our depository relationships is it creates a great deal of predictability. Notwithstanding what the Fed does today or what the interest rate environment does in the next few months doesn't have a short-term impact on us. In the long term, obviously, whatever that rate ends up being will have some impact when we place new money. We don't look at it as being a negative. If rates go up, great.
We will ladder those up, as you know, we kind of spread that out over the three to five years of our new contracts that we enter into. When people talk about are there now going to be rate cuts instead of rate increases? If that happens, that will have a ladder effect on us out three to five years from now. When rates came down, they came down slower for us. We got down to 150. They came up less rapidly for us, but as you know, the rates have come up. We don't have a great deal of anxiety over what's this action going to be. We want to deliver consistent, predictable results, and that's what our ladder permits us to do.
Steph. I think she was first. If you can mark just Thank you.
Hey, guys. Thank you again for this day. When I think about your last Investor Day in 2016, the big barrier to entry was consumer awareness. A lot of folks didn't really see the value of HSAs or didn't know what it was. How has this progressed from then, and is this still the case where this is kind of the biggest barrier to adoption?
I'll say one word, then I want Ted to comment. We're getting smarter at it. I'm not saying we're there yet, we are getting smarter. I think the results are that we're seeing our large employers embrace what we're doing, which is the most important thing, and at least giving us great feedback. Ted's in charge of driving the revenue and everything else in this company, except for these nice meetings.
We're just in the overhead department.
Yeah.
Right. We'll talk later. My quick response is not fast enough. Right? Meaning that we are making progress, and we are getting smarter, in large part because our great large employer partners are pushing us, and we're learning from them, and they're learning from us, and we're testing and learning. We, having come from the 401 space where the category was just better developed, and there was just more awareness, and the kind of metaphor I use is that my mom knows what a 401 is. She doesn't really know what an HSA is. There's a lot more work to be done, which represents both a challenge, but also from my perspective and one of the reasons I'm here, a huge opportunity.
The work that we're starting to do narrowcast, like person by person, on the phone, in chat, and broadcast, email through our large employer partners, is starting to pay dividends, but there's a lot more work to do in terms of educating people on what they can do with an HSA, how they should use it, and what kind of value it can provide for them. We're pretty excited by the opportunity, but there's a lot of wood to chop.
Mark Marcon from RW Baird. Got two questions, if I may. First one is basically, Jon, you laid out things very clearly in terms of your opening comments, in terms of becoming a fuller spectrum provider of all sorts of different services. I'm wondering if that company in orange that you alluded to sees things-
I did no such thing.
Okay.
Who did that slide? That's what I want to know.
He did that slide.
Oh.
I'm wondering.
I'll cop to the slide, but I didn't say anything about any company.
I'm wondering if there's a full appreciation on all sides of the benefits of potentially partnering and being able to go out. A separate question, which is basically, I think part of the reason for doing this is to go after the small business market and the smaller employers where you have one decision-maker for multiple facets. Can you just describe your internal assets, like the internal account teams? Ted, maybe this is for you in terms of where you're making investments. If you're not partnering with somebody else, just what are you doing on your own in order to better attack that part of the marketplace?
Can you start there?
I'll answer that question first. I was really impressed when I got here, and one of the reasons it's easy for me to brag about our capabilities is I had a very small part in building them. I was really impressed when I got here with our account executive model, both on the account executive side, some of whom you see here in the room, who manage the relationships with our biggest employer partners, and then with our partner providers, right? We call employers. We call our health plans predominantly and now our record keepers our partners, and we have an entire partner relationship management team that reports up to Angelique in our service area. Sort of serving the smaller businesses, we have smaller employers.
We have another team of folks that do that all the way down to our employer services group who functions predominantly like a call center and serves our very smallest employers. We invest. I came from a company called Financial Engines, some of you may be familiar with them. They serve a similar employer base providing 401K advice, and I think Jon and Steve have invested a substantially greater amount of resources managing these relationships and building those partnerships than I think we did at Financial Engines, and I think we were the worst for it at Financial Engines because those investments do pay dividends, not only because you have more engaged employers, you provide better service.
One of the things we talk about all the time is, this is perhaps a statistic I shouldn't, it doesn't impact the business, but we're answering the phone for when employers call in one second right now, which is pretty rare in the industry and not really our target. We're answering a little faster than we intend to, but that's our commitment. Right?
Still be really good, though.
Yeah, like three seconds or five seconds.
Like three seconds.
It's a little creepy when you pick up the phone and someone's like, "Hello," before you realize you dialed. That's kind of where we are now. We've got to slow it down just to touch. I think it's that investment and that infrastructure that we've built. We really do think that leveraging those relationships and really being a good partner and really providing that purple service. You hear Jon, Steve, and Darcy at all these investor meetings and the earnings calls talk about purple culture, but I think that's how we live it, is to deliver that kind of service and invest those resources. They do come with a cost, but we think that they pay off for us. I don't know if you want to add what you want to add on the first part about the.
Yeah. Yeah, I'm going to skip that part, but mission accomplished on the joke it sounds like. I guess maybe if I step back slightly from the question, one of the things that I think our investors should take from this discussion is that this organization has a plan, and whether it works or not, we will see, but has a plan and has always had a plan to be a significant force within the area in which we operate, which I'll broadly say is employee benefits and healthcare. It's not just that we have this neat thing called a Health Savings Account, and it's got some great qualities, and we have a particular spin on it, and that's neat, and let's ride that pony as far as we can.
It is that we're trying to assemble the appropriate suite of services, most importantly, the appropriate team, to do everything we can to help our partners and our employers. What you heard today is exactly what I was hoping you would hear from our employers, is they know where they want to go. They know where they want to take their team members. Right? I think about the Raymond James HR department. First of all, I got to answer Peters' questions, but he's not a producer or anything, so he probably doesn't have that one-second line. He's got a 10-second line. Delahanty has got to answer his questions. Oh, by the way, he's got to run benefits for 15,000 highly demanding people, give or take.
Oh, by the way, I don't know what the full size of the HR department at Raymond James is, but I'm guessing it's like 50 people tops. It's just not a big group. They need our help. I guess this is a way for me to say, when you think about everything we talked about today, think about it as an organization that is trying to build itself for a future. Stephanie, I thought, did a nice job of describing this, in which consumers, whatever you end up calling these plans, consumers will have responsibility for a portion of their health expenses, both today and for life. Right? Whatever you call Medicare, it likely will involve people having to make decisions about spending money and saving money. Someone's got to help them be prepared for that, and that's who we want to be.
We'll add the services that are required to do that. We'll add the people that are required to do that, we'll keep on it until you all make us stop. Conversely, what we won't do, it's always useful to say what you won't do. What we won't do is we won't start. Oh, those are nice by the way. We won't start selling socks just because we sell shoes.
Unless they're purple.
Unless they're purple.
A lot of purple socks.
A lot of purple socks. Not mine. Levi's Store didn't have purple socks. There's nothing wrong with this advice, I'm sure you can all imagine the kind of advice you get from investment bankers. "You're doing great. You got this great currency right now. Here's a shiny new thing. You ought to go get that." Right? In a business we don't understand, right? We won't play venture capital with your money. We won't let our team members down by making promises to you that we can't keep. I kind of feel like at some level, those are the two sides of our plan.
The first is exactly the mission that, forget what we laid out at the time of the IPO, the mission that Steve laid out to me in joining the business, or even before I joined it, when I first met him in 2004. On one side of that coin, the other side is by not doing certain things, we can stay focused on that and keep doing it well, hopefully there'll be a market for it. As long as there is, we're going to be out here doing it.
Let's go to Tom.
Yeah, I guess this question is really for Darcy, your lack of presentation, I guess. At the IPO, there were clear financial targets, 25%-35%, and I don't think it necessarily has to be a target, but I do feel like there's a lack of going to your four metrics of revenue profitability, HSA accounts, and AUM about what I'm supposed to expect over the next three to five years, and what initiatives. Is it that HealthEquity is supposed to grow at one and a half to two times the market? What else is HealthEquity delivering, and what am I supposed to expect from that besides, obviously, the macro tailwinds?
Sounds like a question for Jon. No.
I appreciate that, Tom. Thank you.
Yeah. When we, five years ago at the IPO, we did those two metrics that we talked about, and as we've grown larger, it's a little bit more difficult to maintain 40% growth rate on the revenue line. What we are pretty pleased about is that we have consistently delivered increasing profitability margins from, I think we were maybe at 25% when we first started out, and as you know, we're now into the 40s. We changed that dialogue about a year or two ago to say, here's two things that we expect to deliver to you as investors. First of all, that we will outpace market growth. Market growth in HSAs, that's measured in the industry with both assets and number of accounts.
As we've said today, we've consistently done that for the last nine years, we expect to do that, if we're not going to do that, then we will tell you that we don't think we're going to do that. The second thing that we have consistently said is that we are going to grow the bottom line faster than we grow the top line. There's a variety of reasons that we're able to do that, from leverage, from the nature of these accounts and how we help members. When our members are successful, then we're successful, and they're successful when they actually build up savings accounts that they can use for future ability to pay their expenses. When we did our earnings call in the fourth quarter, we said that we're going to make some investments this year that may slow that.
We said that we'll be in the range of our target that we achieved last year for this next year, but these investments that we were making would be to future growth on that earnings line, and we expect to deliver that. It's not that we're deviating from that promise, but we're just giving you a break for one year to say, we may not increase that yield, but we're not talking about taking it down very far. We're saying we're going to be in that range, and we expect that it will have a forehandle on it. Those are the commitments that we're trying to make. There's a lot of things going on in the industry, and we've been pretty consistent about delivering what we say we're going to deliver, that's what I think we're about, Tom.
Yeah. First of all, Tom, I take the point, and it's a fair one. It's kind of interesting. There's an internal to our company parallel that is, we do these BHAGs or big, hairy, audacious goals, and the way we think about it is you achieve something really big by making steps, measuring progress, then you make another step, you measure progress, and Soon enough you're there. That's how I get down ski slopes, sometimes. We this year celebrated achieving the goal of reaching $8 billion in assets. That was a doubling of assets over, I believe, a three-year period. People immediately began saying, "Well, what's the next BHAG?" We said, "You know what? Let's take a few months and think that through." That's what we're doing now internally.
We've asked people for feedback, and so forth, so that it's not just something that we stand up and say. I think my point is there's a parallel process there. I will say, though, that there is one thing out there that can give you a hint as to what this team finds acceptable and unacceptable. That is our compensation, which fortunately for these purposes is all out there. As I think most people know, this management team, I think, and this is a credit to our directors, Frank Medici, who's both other than Steve and perhaps Ian, is our longest-serving director and most importantly for these purposes is the head of our comp committee, has really worked hard on this, as has Bob Selander, along with management. The executive team's compensation is mostly performance comp, and it's mostly performance-based stock compensation.
The component of that that speaks most to this point is that this management team receives the bulk of its ultimately total compensation based on the revenue growth of this business. We did a version of this at the time of the IPO, and it was sort of in the same vein as the guidance Darcy offered at the time of the IPO that you referenced in your question, and obviously well exceeded those targets. A few years ago, we set as part of that performance goal process a three-year growth target. First year, we did it three years at 22. Second year, we did it three years at 20, this last year we did it again three years at 20.
That's consistent with a comment that I've made at some point in the last year in one of our earnings calls, that is that sub 20% top line growth isn't acceptable to us. That's not a forecast or a projection, it's just me telling you what I find to be acceptable given the level of talent that I know this team has and the opportunity that we have. That gives you some sense of at least what we find acceptable. That's maybe a different thing than we're going to promise to you, but maybe the same, I don't know. That's another way to get at that question, and I do feel pretty good about the compensation policies that this company has had and that they've driven management to perform at the same time as providing a level of stability to the culture and to the people who make it happen.
Richard, I think-
We have time for one quick question and one quick answer.
I just have to add one clarification. I think Jon said that he was not doing a happy dance. Have you ever seen Jon do a happy dance? It would be a thing to behold.
I guarantee you he'd be wearing jorts if he was doing the happy dance.
Yes.
Steve-
One last question, right?
Quick last.
And then-
Thanks. Steven Wardell with Chardan Capital Markets. I'm seeing signals that corporate buyers, large enterprise buyers, are starting to think about buying ancillary benefits for their employees on a suite basis or a platform basis. Instead of making 30- 40 individual decisions for products every two to three years and renewing them, they're now thinking in terms of maybe a navigation and wellness platform, and that might be Castlight, for example, and a disease management platform, and that might be Livongo, and an enrollment platform, and that might be Benefitfocus. Where do you think you fit into that? Are you part of the navigation and wellness platform, or are you your own platform, or are you not going to be part of this platform trend?
Well, we're going to be where our partners are. If our partners want us to participate in platforms, we will. There was a parallel discussion, it actually goes all the way back to the time of the IPO, about what were then called private exchanges. At some level, what you're describing, it's a version of private exchange except, well, we couldn't quite do it for healthcare, let's see if we can do it for the ancillaries. That doesn't mean it won't happen. It might, but I give the same answer I gave then, which is we're happy to connect anyone. At some level, we connect to at least some level every one of the firms you mentioned, and in some ways pretty deeply. Sounds great. Whatever helps our partners and ultimately members do what they need to do.
I'd say maybe the flip side of that is what we're not going to do in all likelihood is say, geez, what we have is a platform that we think it's a good idea to force employees or clients into. It's a nice idea, except it doesn't work. That's not our business plan. Our business plan ultimately revolves around helping consumers spend and save wisely, connect health and wealth.
Thank you guys. We'll have everybody stick around, so if you want to try and ask your questions individually. We've got lunch served here.
Thank you all.
Thanks everybody.
Thank you for all for coming.