Monthly commentary - Mackenzie Growth Team

Written by the Mackenzie Growth Team

Recently, we attended HealthEquity’s Investor Day in Salt Lake City. Their main product offering, Health Savings Accounts (HSAs) allow consumers to spend on qualified healthcare expenses in a tax-efficient manner. We left the event energized about new product rollouts and market share opportunities as HealthEquity reinvests into their core offerings.

Over the past 15 years, American companies have been controlling trying to control healthcare inflation by offering more High-Deductible Healthcare Plans (HDHPs). The driving force behind this movement has been the increase in healthcare “consumerization” created by higher deductibles as companies try to bend the cost curve in healthcare. The story is not too dissimilar to the rise of 401k plans during 1980s, which provided employers a cost-effective alternative to employer sponsored retirement plans (pension plans). Employers are also trying to limit the health cost burden to their employees by funding (either fully or partially) a health savings account in conjunction with these higher deductible health plans. The number of employers offering HDHPs has more than doubled from 13% in 2010 to roughly 30% in 2022.  

HealthEquity has established themselves as a top 3 provider of HSA accounts in the USA. They account for roughly 20% market share today but have ambitious growth plans which is supported by their strong sales activity (opened roughly 30% of all new accounts last year). With over 8 million HSA member accounts, HealthEquity is focused on educating clients about the various tax and saving advantages of these accounts. The company generates revenue in 3 distinct buckets: Custodial (interest rate spreads), Interchange (debit card fees on purchases) and Service (account fees). 

These accounts are triple tax-efficient products where consumers can deduct contributions from income taxes, investment income, dividends and capital gains are tax-exempt and withdrawal from HSA accounts are tax-free for qualified healthcare purchases. The company has re-platformed their data into the AWS cloud, built spend management tools, improved their mobile app and will be introducing a virtual card (rather than a physical card) to improve the consumer experience. We are excited by the opportunity for HealthEquity to double Net Income per Share over the next 3 years.   

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