HealthEquity - Earnings Call - Q1 2026
June 3, 2025
Executive Summary
- Q1 FY26 delivered record revenue ($330.8M) and record Adjusted EBITDA ($140.2M), with strong non-GAAP EPS of $0.97; both revenue and EPS exceeded Wall Street consensus, and management raised FY26 guidance ranges across revenue, GAAP and non-GAAP EPS, and Adjusted EBITDA.*
- Revenue grew 15% YoY, driven by custodial revenue up 29% and interchange up 14%; gross profit rose to 68% of revenue (from 65% a year ago), reflecting pricing/mix and operating leverage.
- Fraud-related service costs fell sharply to ~$3M from ~$11M in Q4, with management targeting a one-basis-point annualized fraud cost exit rate; retention remained “high 90s%” with no client fallout reported.
- Guidance raised: FY26 revenue to $1.285–$1.305B (prior $1.280–$1.305B), GAAP net income to $173–$188M (prior $164–$179M), non-GAAP EPS to $3.61–$3.78 (prior $3.57–$3.74), and Adjusted EBITDA to $530–$550M (prior $525–$545M).
- Catalysts: continued improved fraud posture, de-risking of HSA cash repricing via forward treasury hedges (~4% base rate on $500M), and potential legislative HSA expansion that could add ~20M eligible families industry-wide.
What Went Well and What Went Wrong
What Went Well
- Record financials: “record quarterly revenue, record Adjusted EBITDA, and increased guidance for the year,” per CEO Scott Cutler.
- Mix and margin: custodial revenue up 29% to $156.5M; gross profit reached 68% of revenue; Adjusted EBITDA margin expanded to 42% (vs 41% LY).
- Fraud remediation and security: fraud costs fell to ~$3M from ~$11M in Q4; mobile-first secure authentication roll-out advancing; no enterprise client fallout with retention in the high 90s%.
What Went Wrong
- Softer selling season: 150k new HSAs from sales in Q1, down from 194k the prior year, with management citing tougher comps and macro caution on job growth/GDP.
- Elevated service costs remain: while improved, fraud-related costs are still above target; management expects normalization in 2H FY26, not immediately.
- Insurance recovery timing unclear: no update reflected in outlook; fraud impacts mitigated operationally but recovery proceeds not embedded.
Transcript
Speaker 11
Good day and welcome to the HealthEquity First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead.
Speaker 10
Thanks, Ashia. This is Richard Putnam. Hello, everyone. Welcome to our First Quarter of Fiscal Year 2026 Earnings Call. With me today, I have Scott Cutler, President, CEO; Dr. Steve Neeleman, Vice Chair and Founder of the company; James Lucania, Executive Vice President and CFO. Before I turn the call over to Scott, we note that a press release announcing the financial results of our First Quarter of Fiscal 2026 was issued after the market closed this afternoon. These financial results include contributions from our wholly owned subsidiaries and accounts they administer, as well as certain non-GAAP financial measures that we will reference here today. You can find a copy of today's press release on our Investor Relations website, which is ir.healthequity.com, and it will include reconciliations of these non-GAAP measures with comparable GAAP measures.
We also note that our comments and responses to your questions today reflect management's view as of today, June 3, 2025, and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates, or other information that might be considered forward-looking. There are many important factors relating to our business which could affect the forward-looking statements made today. These forward-looking statements are subject to risk and uncertainties that may cause our actual results to differ materially from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risks that may affect our future results or the market price of our stock, as detailed in our latest annual report on Form 10-K and subsequent periodic reports filed with the SEC.
We assume no obligation to revise or update these forward-looking statements in light of new information or future events. Now, over to Scott.
Speaker 4
Thanks, Richard. Welcome, everyone. We're off to a great start for Fiscal 2026. I will discuss the key metrics reflecting that great start. Steve will then give a brief update on HSA expanding provisions included in the proposed budget bill passed by the House a couple of weeks ago. Jim and I will detail Q1 financial results and our raised outlook for Fiscal Year 2026. The team again delivered strong year-over-year growth across our key metrics in Q1, including revenue up 15%, adjusted EBITDA up 19%, HSAs grew 9%, CDB accounts grew 4%, driving total accounts up 7%, and HSA assets up 15%. HealthEquity ended Q1 with over 17 million total accounts, including net CDB account growth of 260,000 year-over-year, 9.9 million HSAs holding over $31 billion in HSA assets. HSA assets increased $4 billion year-over-year.
The number of our HSA members who invest grew by 16% year-over-year, helping to drive invested assets up 24% to $14.2 billion. HSA cash reached $17.1 billion. The average balances of our HSA members grew by 6% this year. Team Purple opened 150,000 new HSAs from sales in the quarter, down from Q1 of our record-setting last year, reflecting softer macroeconomic conditions. While we are still early in this year's selling season, we continue to see a strong enterprise pipeline build and more SMB companies adopting HSA-qualified health plans. We are driving an enrollment and contribution strategy to grow from our existing client base, especially during uncertain times which have historically brought stronger selling seasons. We are helping employers reduce healthcare costs while empowering employees to build real health security.
As employers are seeking solutions to manage healthcare costs that are growing faster than wages, we believe our message to optimize plan design and employee engagement can drive growth from our existing and new client base. The 2024 year-end Devenir report continues to reflect this market growth and HSA expansion, with HealthEquity again taking market share as we now serve nearly a quarter of all HSAs in the USA. Team Purple also made great progress expanding our member-first secure mobile experience during the first quarter. We are leveraging investments in mobility and AI by expanding our award-winning Expedited Claims, which uses AI technology to automate claims adjudication. With this AI technology, we now serve more than 7,000 clients, and we are processing millions of dollars in reimbursements while also driving member satisfaction scores up and reducing processing costs.
Our AI chat and AI agent support are accelerating service delivery to our members and accurately addressing their needs and questions while reducing call wait time and volume. We are building on the recently updated stacked chip card, which we rolled out last year to deliver on our promise of expanding into a digital wallet in the future. Custom brokerage investing in your HSA was also launched on the mobile app this quarter. These technologies are transforming the way Team Purple improves our members' experiences while reducing our cost to serve them. We're very pleased with our team's efforts to drive down successful fraud attacks on our HSA members. The launch of a number of added security measures and greater adoption of our member-first secure mobile experience has reduced direct fraud service costs from about $11 million in Q4 to about $3 million in Q1. This is still too high.
However, under the direction of Sunil, our CSO, and his dedicated security and fraud team, we have reprioritized our investments in advanced security and fraud detection and prevention technologies to drive the fraud run rate exiting this quarter towards our goal of one basis point of total HSA asset per year. We have seen each month this year lower sequential fraud as our controls take hold and more of our members move to a secure mobile experience. We also are driving more of our HSA members to our newly relaunched app. We are modernizing our multi-factor authentication across our member logins through the mobile experience and are committed to continually updating our defenses as threats evolve. We are optimistic of the actions taken thus far and the continued strengthening and implementation of controls.
A number of our Purple teammates joined Steve and me in Washington, D.C., last month to speak with national leaders as they consider measures that will expand access to and provide greater flexibility of HSAs for millions of American families. It was serendipitous the House released their draft of the budget bill while we were there. We are excited to see these HSA market-expanding provisions move forward. Steve, can you briefly walk us through what we've seen so far and what to expect as they work through the budget bill process?
Speaker 7
Sure. Thanks, Scott. It was an exciting time to have so many from Team Purple show up in Washington that week. This work that we've been engaged with to expand HSAs is important as there have not been any substantive legislative changes to the HSA rules and regs since 2006. As many of you have seen in the budget bill passed by the House, there are a number of provisions that, if they became law, would expand the use of HSAs. The largest proposed change is granting our working seniors eligible for Medicare Part A the ability to make contributions to an HSA while they remain on their employer's HSA-qualified health plan. According to the U.S. Census Bureau, this population represents about 20% of the current workforce, and it is expected to be the fastest-growing population in the workforce over the next several years.
In fact, over the next five years, over 20 million Americans will become Medicare eligible, and many of these people are currently funding HSAs, and they can continue to do so while working with the new legislation. Other provisions in the proposed HSA section of the bill include an expanded use of HSAs on exchanges.
All bronze and catastrophic plans would become HSA eligible, allowing HSAs to be used in conjunction with employer on-site medical clinics and with direct primary care arrangements without jeopardizing HSA eligibility, expanding the use of HSAs to pay for gym membership and fitness programs, allowing unspent money in workers' FSAs and HRAs to fund HSAs, allowing taxpayers that are 55 years and older to have catch-up contributions by both spouses to be deposited into the same HSA, and allowing members earning under $75,000 per year individually or $150,000 per year per family to increase their maximum contribution up to double the current prescribed amount into their HSAs. These contributions would phase out as taxpayers make $100,000 individually and $200,000 as a family per year.
Our industry believes that these provisions could allow up to 20 million more American families to have access to the remarkable benefits provided by HSAs, and that would be the largest expansion of the regulatory framework in the last 20 years for HSAs. We believe many of these provisions will make it easier for employers to offer and to promote HSAs. That would be great. If they become law, these provisions are a good down payment on our commitment to help all Americans have personally owned healthcare accounts. We'll, of course, watch this closely as the Senate unveils their version of the tax bill.
Of course, the bills will then need to be combined in reconciliation, and our goal is to see all of these HSA provisions and other similar accounts remain in the bill, and we want to make sure that we're following how they're impacted in the bill before they can send it on to the President for his signature. We will continue to work hard to educate legislators and regulators on the benefits of HSAs and continue to press for other ways to expand these accounts to new populations. We, of course, remain confident that HSAs and other tax-advantaged health accounts are popular on both sides of the political aisle, and we'll continue to advocate for all Americans to have the opportunity to have access to them. I'll now turn the time over to Jim, and he'll go over the financials. Jim.
Speaker 4
Thanks, Steve. I'll briefly highlight our first quarter of 2026 fiscal year GAAP and non-GAAP financial results. As always, we provide a reconciliation of GAAP measures to non-GAAP measures in today's press release. First quarter revenue increased 15% year-over-year. Service revenue was a record $119.8 million, up 1% year-over-year. Custodial revenue grew 29% to a record $156.5 million in the first quarter. The annualized yield on HSA cash was 3.50% for the quarter as a result of higher replacement rates and continued increase in the number of accounts participating in enhanced rates. Interchange revenue grew 14% to $54.6 million, notably faster than the 7% account growth, as members increased both contributions and distributions and conducted more payments on platform versus requesting cash reimbursement for payments made off-platform. Gross profit of $224.3 million was 68% of revenue in the first quarter, up from 65% in the first quarter last year.
Service costs incurred in the first quarter included, as Scott mentioned, approximately $3 million of fraud reimbursements to members, down from about $11 million in the fourth quarter last year, reflecting our improved capabilities in identifying and preventing the sophisticated fraud activity our members experienced in the prior two quarters. We continue to invest in fraud prevention and detection capabilities and drive higher adoption of our secure mobile experience, and we believe these efforts will normalize service costs in the second half of fiscal year 2026. Net income for the first quarter was $53.9 million or $0.61 per share on a GAAP basis. Non-GAAP net income was $85.8 million or $0.97 per share. Adjusted EBITDA for the quarter was $140.2 million, up 19% compared to Q1 last year, and adjusted EBITDA as a percentage of revenue was 42% compared to 41% in the first quarter last year.
Turning to the balance sheet, as of April 30, 2025, cash on hand was $288 million. We generated $65 million of cash flow from operations in the first quarter of FY26. The company ended the quarter with approximately $1.1 billion of debt outstanding net of issuance cost. The company repurchased approximately $60 million of its outstanding shares during the quarter and has approximately $118 million remaining on our previously announced $300 million share repurchase authorization. Before I detail our raised guidance and assumptions, a word on our HSA cash maturity schedule that was updated and included in today's earnings release. As we have indicated in previous earnings calls and our investor day last year, enhanced rates while providing higher yields are more about reducing the volatility of our yield on HSA cash.
To further reduce volatility and rate exposure, in the fourth quarter last year, we amended and extended maturities on some of the $3.2 billion of depository custodial contracts maturing in FY26, in essence pulling forward those maturities into what we believe is a better rate environment. The remaining $1.7 billion of maturing contracts this fiscal year are largely scheduled to be replaced into new contracts at the end of this year. We also have $4 billion of HSA cash and contracts maturing next year, FY27. In order to further de-risk expected interest rate volatility on the combined remaining $5.7 billion maturing over the next 20 months, we have entered into some forward treasury contracts during Q2 that essentially locked in five-year treasury base rates at approximately 4% net of hedging costs on $500 million of these maturities. We anticipate further de-risking transactions over the remainder of FY26.
We expect the average yield on HSA cash will be approximately 3.5% during fiscal 2026. As a reminder, we base custodial yield assumptions embedded in guidance on projected HSA cash deployments and rollovers, the schedule of which is contained in today's release, as well as an analysis of forward-looking market indicators such as the secured overnight financing rate and mid-duration treasury forward curves. These are, of course, subject to change and not perfect predictors of future market conditions. Our fiscal 2026 guidance reflects the expected carry forward of the trajectories for revenue and margins for the remainder of this year, including technology and security investments to reduce fraud and drive operational efficiencies, as well as relatively stable forward interest rate curves. We expect revenue in a range between $1.285 billion and $1.305 billion. GAAP net income in a range of $173 million to $188 million or $1.96 to $2.13 per share.
We expect non-GAAP net income to be between $320 million and $335 million or $3.61 and $3.78 per share, based upon an estimated 88.5 million shares outstanding for the year. Finally, we expect adjusted EBITDA to be between $530 million and $550 million. We continue to invest in protecting our members' assets and data while providing them with a remarkable experience. We're pleased with how we exited Q1 and look to make additional progress in Q2 towards normalizing fraud costs to our target of one basis point on total assets per annum. Our guidance includes additional expected share repurchases under the $300 million repurchase authorization and potential reductions in revolver borrowings during the fiscal year. With continued strong cash flows and available borrowings on a revolver, we will maintain ample capacity for portfolio acquisitions should they become available.
We assume a GAAP and a non-GAAP income tax rate of approximately 25% and diluted share count of 88.5 million, including common share equivalents. As we've done in previous reporting periods, our fiscal 2026 guidance includes a reconciliation of GAAP to the non-GAAP metrics provided in the earnings release, and a definition of all such items is included at the end of the earnings release. In addition, while the amortization of acquired intangible assets is being excluded from non-GAAP net income, the revenue generated from those acquired intangible assets is included. With that, let's go to the operator for your questions.
Speaker 11
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from George Hill with Deutsche Bank. Please go ahead.
Speaker 1
Hey, guys. I appreciate the time, and thanks for taking the questions. I guess, Scott, I'd probably start off with the slowdown in the HSA selling conditions. Are you just thinking that this is a tough comp, or is there something macro that you're attributing this to and kind of would love any kind of forward visibility on how you're thinking about the environment?
Speaker 8
Yeah. Thanks, George. So $150,000 in new HSA sales, a little bit lighter than last year at $194,000, but again, recognizing that it's substantially higher than the $134,000 in Q1 of fiscal year 2024. We actually feel pretty good. I think when we look at the pipeline of what we see currently, we are optimistic about that pipeline in enterprises, as I said in my comments. I think in other economic downturns, we've actually seen the opportunity to lean into the message. What we're driving in terms of our value proposition with employers is that with effective plan design and greater adoption, we can help drive down their healthcare costs that are growing faster than wages. I guess what I would say is that there's really nothing to see here relative to our either short or longer-term view of the market.
We're optimistic about the selling season. We feel like we've got a good enterprise pipeline. If anything, we're cautious about the macro impact overall for job creation, slower GDP growth as that relates to new account sales.
Speaker 1
That's helpful. Jim, if I could sneak in a real quick follow-up, you talked about locking in the 4% rates net of hedging costs. I might have missed this. Did you say what the duration on that was? Is that the typical two to three-year holding period, or is that longer?
Speaker 4
Oh, yeah. What we've done is we have entered into forward treasury contracts for five-year treasuries. Effectively locking in the base rate for a basic rate to enhanced rate migration. Yeah, it's locking in the T portion of those maturities that are happening in Q4 of this year and Q4 of next year.
Speaker 1
Okay. I appreciate that. I'll hop back in the queue. Thanks, guys.
Speaker 8
Thanks, George.
Speaker 11
The next question comes from Alan Lotswith, Bank of America. Please go ahead.
Speaker 0
Hey, good afternoon, and thanks for taking the questions. Jim, the fraud costs were about $9 million better than we expected, but the EBITDA raised was only about $5 million. Can you talk about how much of the fraud costs above that one basis point are still included in the guide? Or I guess if I put it another way, if 2Q goes back to that one basis point of fraud cost run rate for the full year, how much upside to the current guide is there? Thanks.
Speaker 4
Yeah. Let me try to unpack that. Yeah, while we may have been ahead of your expectation, we're pretty much right on where we expected to be at this point in the year on our outlook. We're trying to get to a one basis point exit rate, which we think we can get to in the back half of this year. We're not signing up for being there right now, obviously not there right now with $3 million of expense in the quarter. I'm not going to try to do the what if we got there, what if we got there math, but we haven't really changed our outlook on a fraud perspective from the last guide because this quarter happened exactly as we thought it would happen.
Speaker 0
Okay. Thanks. That makes sense. A follow-up for Steve around, I guess, the size of the increase of the addressable market here. A clarification question here. I think you said that if the legislation goes through, 20 million more families through Medicare Part A could continue to contribute, which would expand the market by 20 million. You also say that the overall expansion could be 20 million. Is that 40 million total? I guess the way that I'm thinking about it is, will those 20 million just sort of age out, I guess, of HSAs? Just trying to understand if this is a net 20 million or a net 40 million increase in the addressable market. Thanks.
Speaker 10
Yeah. No problem, Alan. So it's really a net 20. And it's a combination of Medicare Part A people that when they turn 65 would typically drop out of the workforce or at least out of workforce HSAs. Plus, you've got these folks on the exchanges that are allowed to do it. So it's a net 20, not net 40. And that's the way we see that's the way the industry has been promoting it, is 20 million net.
Speaker 8
Thanks, Alan.
Speaker 0
Thank you.
Speaker 11
The next question comes from Anne Samuel with JPMorgan. Please go ahead.
Speaker 2
Hi. Thanks for the question. Great to hear some positive movement on HSAs. I was hoping maybe you could just give a little bit of an update on how you're tracking towards your goal of getting current members to download the app and kind of how you're thinking about that around kind of security and kind of fraud expenses as you move towards the next onboarding season. Thanks.
Speaker 8
Yeah. Thanks, Anne. So again, just a reminder, the priority for us over the course of this year that certainly I came into at the beginning of the year has been, number one, fraud on the platform. Number two, it's just been stabilization of the platform given the experiences in Q4. The way we're getting after that is with this mobile orientation around a member-first secure mobile experience. In combination with the efforts that we're making with fraud, in addition to the mobile download, we know that it's going to drive better engagement with members. We know the outcome is a more secure access or authentication into our platforms. What we expect over the course of this year on the mobile side is that, call it by default, any member accessing or authenticating our platforms will be authenticating through a passwordless passkey authentication method through the mobile experience.
We know that experience is secure. We are also driving a strategy towards driving greater engagement with our members, which I think we also see the benefit of. Driving mobile adoption is putting us in a better position to help our members save, invest, and spend in an integrated app experience overall. The mobile strategy is certainly tied to the security posture, but the end of it is a real benefit in terms of the member experience. We have seen an increase in app downloads. We highlighted about 1.2 million app downloads at the end of Q1. We are going to be driving more app download adoption.
Although I think the metric that we look at for success on the security side is not necessarily just app downloads, but it's actually have we secured the perimeter, meaning you're going to be required to download the app to interact with our platforms.
Speaker 11
Thanks. Really helpful. Thank you.
Speaker 8
Thanks, Anne.
Speaker 11
The next question comes from Greg Peters with Raymond James. Please go ahead.
Speaker 5
Good afternoon, everyone. I wanted to go back to the comments on the selling season and integrate it with the fraud situation. Just curious, from an enterprise level, if you've seen any fallout from the elevated levels of fraud in your HSAs. I'm curious if you could give us a sense on how the retention of your enterprise customers is proceeding in the context of the elevated fraud levels to help us map out what's going on there.
Speaker 4
Yeah. Thanks, Greg. In direct answer to your question, we have seen no fallout from fraud on the platform. Our retention rates actually, to date this year, are higher than they've been in years past, so high 90% in terms of retention. I think when it comes down to selling this in the enterprises, it's certainly with Sunil on board, and we've built out an incredible leadership team around Sunil in application security and in fraud. We're also communicating very directly with our enterprise clients the why of what we're doing around all of the measures that we're taking. I certainly look at any incident of fraud erodes trust.
At the same time as we're able to deploy the prevention measures and as we're driving towards this mobile-first experience, I believe enterprises are going to be looking at that as a positive change for HealthEquity, positive change to increase security. All of our interaction with our enterprise clients effectively suggests that. Again, I think it's really important that we emphasize the importance and the priority of security, clear that we're making the investments around security, and it's being integrated seamlessly into the experience itself to build trust.
Speaker 5
Thanks for the detailed answer.
Speaker 8
Thanks, Greg.
Speaker 11
The next question comes from Scott Schoonhouse with KeyBank. Please go ahead.
Speaker 9
Hey, team. Thanks for taking my question. My first one is just a housekeeping question. You cited the $3 million in reimbursements for the quarter, which came down a lot. What was the sort of the reimbursements from the insurance? What was the overall costs as you tried to invest into the quarter? If you could break all those other buckets down.
Speaker 8
Yeah. So what we talked about in terms of what we experienced is $3 million in direct fraud versus $11 million in Q4. That's not a reimbursement number.
Speaker 4
Yeah. Us reimbursing members for fraud.
Speaker 8
Yeah. We have no update on the insurance recovery.
Speaker 4
Yeah. Nor is any reflected in our outlook.
Speaker 9
Oh, wow. Okay. I guess, what are you seeing? What did you see in April in the resources now that you're using, you've deployed or invested in for sort of detection? Walk us through cases where you've seen elevated activity or were able to prevent activity in the recent months with these new investments. Thanks.
Speaker 8
Yeah. What we've been able to do is deploy resources into our security team. Importantly, it has not impacted our percentage of T&D spend relative to revenue, which we had mentioned on our last call. The resources that we've deployed, again, have been driving a sequential reduction in the fraud rates month to month over the course of this year, which we feel really good about. The main fraud vectors that we've been attacking have been general account takeovers, which we've been able to make great progress against, and also preventing if an account was taken over from funds moving to or an unassociated bank account, which we've also been able to stop. The other area, given that we've got millions of cards out in circulation, is actually stopping and preventing fraudulent transactions, largely from card-not-present transactions across our network.
There, again, deploying fraud detection tools to be able to effectively not authorize transactions that we know are fraudulent is the way that we've been attacking fraud that's coming through the card network. The last piece, and we really think of it as top of the funnel, has really been around protecting access to the platform through our mobile security efforts. Again, we're beginning our journey there as we drive more adoption to the mobile app and as we require access to our platforms through that. That's going to happen in the later part of the year. Those are the things that we're doing to prioritize it. I'm very optimistic about the progress that we've made against those. Again, with the sequential fraud rates coming down month to month, I'm certainly encouraged by that progress that we've made since the beginning of the year.
Speaker 10
Great. Thank you so much.
Speaker 8
Thanks, Scott.
Speaker 11
The next question comes from Steven Velicet with Mizuho Securities. Please go ahead.
Speaker 6
Thanks. Good afternoon. Let me offer my congrats on the results. Yeah. I guess just coming back to your comments regarding all the positive HSA proposals in the House version of the budget bill, I just want to drill in a little bit deeper on the doubling of the maximum annual contributions for individuals earning under $75,000 to $100,000 a year and families making under $150,000 to $200,000. I guess I was just curious if you guys had any numbers around that, just the number of people in existing accounts that fall into those income thresholds. Because I sort of view it as a multiplier on the HSA assets could almost be more important to your earnings than the number of eligible people that can open accounts. Just wanted to get a little more color around that if you have any estimates. Thanks.
Speaker 8
Yeah. A couple of—Amy, Steve? Steve, maybe I'll say a couple of things, then you can add to it. I think when you think about it, one thing that we remind everybody is that when you look at HSA contributions, only about 4% of members contribute at the max. And so one of the key things we're trying to do is drive awareness that you should be contributing to the max. Obviously, here in the expansion, the increase of health savings account contribution limits for individuals on middle to lower incomes, I think from a score perspective, that's been scored at a cost of $8 billion over 10 years. But we do think it's modestly impactful in terms of the messaging of the power of having an HSA account as well as contributing to the max. Steve, I don't know if you'd have more to add to that.
Speaker 10
Just a couple of things. Look, I think it's a good question. Last time we looked at the median household income of our account holders, it's around $72,000. The vast majority would actually fit into this rubric. Now, the question is, what Scott's pointing out is, how do you contribute more? I really think it comes back to a plan design issue. One of the things that gets us most excited about these provisions is we could actually come to employers. We're doing that right now.
I mean, this is part of our recession-proof part of our business is to talk to employers during these economic downturns and say, "Hey, this is a way for you to save money." And say, "Really, there's an opportunity here for you to change the way you make contributions to HSAs to help maybe lower-income people get into these accounts." And so the employers can fund, and you can do variable funding. We have employers that will give more money to lower-income people than they do for higher-income people, which we think is a good strategy to drive higher adoption. That way, people aren't afraid of the higher deductible that comes with the HSA. And so, look, short answer is a lot of our account holders would fall into this. The longer answer is, do people really have the money to put into these accounts?
I think the answer is if they start looking at the tax advantages of the HSAs compared to even the 401(k) because it is a lot stronger from that perspective that we can start to tell that story. The biggest thing we can do is to get employers and health plans to start driving to higher adoption in these accounts, more full-replace solutions for employers because that's where they're going to not only provide, we think, the richest benefit for their folks and also drive down their cost. I think it just opens a door, Steven, for a lot more innovation when it comes to plan design.
Speaker 6
Okay. Yep. That's very helpful. Thank you.
Speaker 8
Thanks, Steven.
Speaker 11
The next question comes from David Roman with Goldman Sachs. Please go ahead.
Speaker 14
Hey. Thank you. You've got Jamie on for David this afternoon. I wanted to see if you could unpack just the growth between custodial cash and HSA investment cash. The latter's growing a lot quicker. If you can just help us think through the unit economics as the investment side grows quicker than the custodial cash.
Speaker 8
Yeah. Yeah. No problem. Obviously, the custodial cash, we're making the yields on HSA cash, which we disclosed to you guys. Sort of think of the investment cash as something more like high 20s basis points on average, right? We have some clients who have reached the max fee, who are paying less, and in a typical dollar is coming in at 30 or so basis points. It moves up and down, but high 20s basis points on investors. I think the spirit of the question is that these are not sort of transferable buckets. We tend to think of our account holders as in one or two different cohorts, right? You are either a saver/spender, you're an investor and a spender, or you're just an investor. Those groups behave very, very differently.
To the member that is growing their cash balance, helping us grow our custodial cash balance is a different member than the member that is contributing the $8,000-plus family per year into the investment balance. We take care of all of those populations, and each one of those populations is growing.
Speaker 14
Okay. Great. I just wanted to focus on the Medicare Part A seniors for a minute. Obviously, given the life cycle stage of that population, how would you have us think about the propensity of those types of patients to save in HSAs? Is there a benchmark or similar population that you'd compare it to in terms of propensity of that population to invest in HSAs?
Speaker 10
Do you want me to address that, Scott?
Speaker 8
Yeah. Go ahead. Yeah. Go ahead, Steve.
Speaker 10
Look, I think a general rule is, is if people have a longer tenure with HealthEquity—I can't speak for the other companies in our space—but I know with HealthEquity, the longer tenure they have with us and the little bit older they get, the more income they have to put into their HSAs. And so we love folks that are in their 50s, their fifth, sixth decade of life that have been in HSAs for four or five years because they are really pounding the money in because they know. And it kind of makes sense, right? At that point, they probably don't have a lot of dependents at home. They don't have those types of things. They're probably a little bit healthier than they will be later in their life. And so they're putting as much money into these accounts as possible.
By the time they've been with us for four or five years, they're starting to understand that if they've got an extra dollar, they should put it in their HSA. We do think there's a real opportunity here. The reality is that not everyone that is 65 is still in an employer-sponsored plan or a high-deductible plan. There are a lot that are. There are a lot that are. One of the things that happens is that they tend to kind of—they get the notices from the government that say, "You better sign up for Medicare." If they enroll in Social Security, they get auto-enrolled in Medicare Part A. All of a sudden, they reach out to us and say, "Hey, I got a problem here.
I just met with my accountant, and I've been funding my account for the last six months, and I got to get the money out of it because I can't do it because I've been disqualified by being in Part A. Again, they get auto-enrolled when they start with Social Security and things like that. I think there's a lot of opportunity, a lot of educational that we can do. One of my favorite stories is about somebody that turned 55 and put $47 in his HSA.
He sent me a note when he turned 65, and he said, "I now have over $100,000 in my HSA." He goes, "I'm going to work for another five years because I want to get this thing up as high as I possibly can so that when I really do truly go into active retirement, I have the money I need to take care of my healthcare expenses." It is a great question. We are going to keep chopping away at that tree, but this just gives us a little bit of a sharper axis to do so.
Speaker 14
Great. Thank you.
Speaker 8
Thank you, Jamie.
Speaker 11
The next question comes from Stan Wernstein with Wells Fargo. Please go ahead.
Speaker 12
Hi. Yes. Hi. Thanks for taking my questions. First, on the forward contracts, I'm just curious, do you still get upside of rates in your fire from here?
Speaker 8
We will get upside, and then we will pay that upside to our counterparty on the hedge that we entered. Effectively, we have locked in forward treasury rates on $500 million of maturing bank contracts. The rationale there is, right, we have $5.7 billion of point-in-time risk on reinvestment or replacement of those maturing basic rate contracts. We are not making a sort of speculative trading decision. What we are doing is trying to de-risk that point-in-time risk a bit and locking in a treasury rate that we believe is significantly above what we view as neutral. It is locking in a good HSA yield. Could it be maximizing HSA yield? Perhaps. Could it be under-maximizing HSA yield? Perhaps. We are effectively locking in the forward curve today to reduce that maturity wall.
Speaker 12
Got it. Got it. Okay. Another one here on the legislation. Past couple of years, the market has added about 2 million new HSAs per year. If this legislation passes, how creative do you expect the current pace of growth to become? Any thoughts on that? Thanks.
Speaker 10
Yeah. We do not know. One of the things that—and again, we have focused a lot on the Medicare Part A stuff. We talked a little bit about the exchanges. There are other provisions in this legislation, which I think are equally as exciting. I mean, everyone who follows HealthEquity knows that we have over 100,000 employers, and they really do drive a lot of our growth. To be able to go to an employer—again, if all these provisions stay in there—and say things like, "Hey, did you know that the money that people are putting into their HSAs can now be used to both pay for direct primary care up to a certain amount per month as in the legislation?" The very existence of them being in a direct primary care arrangement does not exclude them from having an HSA.
Same thing with using HSA dollars for gym passes and things like that. Or we've had a lot of employers that have come to us and said, "It's really frustrating for us that we want to offer an on-site medical clinic." Actually, a good colleague of Scott and mine that we both have known for years has on-site medical clinics to a bunch of the tech companies throughout Silicon Valley. It's frustrating for them because they want to provide this upfront medical care, sometimes free of charge, for people that are working. You can imagine the same situation in factories and things like that. Yet, that could disqualify them from having an HSA unless they charge a market rate at their own medical clinic, which just adds a level of complexity.
I don't know, to get to your base question, we obviously keep our eye very closely on that number of new HSAs created. As much as we like to always capture market share like we've been doing, we want to still capture market share with the market being bigger, doggone it. That's what this is all about. I don't know how we can drive up that number, but I just want to—what I'm trying to convey to you, it's not just about the Med Part A people. It's not just about the exchanges. It's about going to employers with a different value proposition saying, "Have your on-site medical clinics, do direct primary care arrangements." Again, if these provisions stay in there, and let's still have HSAs, and let's really go after this, and let's just go full replace. That's the easiest thing. Go full replace.
Everyone's in. Create a nice benefit for your folks. You're going to save probably a few million bucks a year depending on the size of the employer, and your people are going to now have a better benefit. That is what I think it's all about. I do not know if that addresses your question, Stan, but that is the way I see it.
Speaker 12
Directionally, it does. I appreciate the comments. Thanks so much.
Speaker 8
Thanks, Stan.
Speaker 11
The next question comes from Matthew Ingalls with RBC. Please go ahead.
Speaker 13
Hey, guys. Thanks for taking my question. Love to see the service cost come in really strong. I was wondering, is the AI chat and agent support as well as the AI claims already meaningful to that service cost strength? If so, can you maybe size that for us and give us a sense for how impactful that could be this year as you expand it?
Speaker 8
Yeah. We don't break out the exact costs associated with the AI deployment. What I would say is, obviously, we're trying to bend the curve on service costs over time, automate as many of the interactions that drive value to the member experience as possible. I love the fact that we had an award-winning product in AI around claims. When you think about that claims process, that claims process itself would be filling out a form, having somebody look at a form. It might take a week or two weeks to adjudicate that form, and then it might take a day or two to receive the reimbursement. We've collapsed all of that to be real-time, instantaneous through that process on the phone, in a mobile device, not touching a human. We think that's a great experience for our members and obviously at a lower cost.
I think when we look at the application of AI in the rest of our service efforts, we have a service modernization strategy, which is looking at how we're actually serving those customers and looking at how we actually drive value to what the customer expectations are. When we think about the customer today, 70% of the workforce in the next couple of years is going to be millennial and Gen Z. Their expectation is digital-first, certainly mobile, do not really want to interact on the phone, want to be able to use AI, generative AI in their interactions. Today, the reality is most of our context are phone-based.
We are going to be looking at how we use AI to actually have more self-service opportunities, more opportunities in email and in chat and generative chat to be able to get answers quickly where our members want those answers. Again, over time, we would expect that to drive down our service costs. That really is our strategy that starts with the value proposition that we have to our members to provide a remarkable experience.
Speaker 13
Awesome. Thank you so much.
Speaker 8
Thanks, Matt.
Speaker 11
The next question comes from David Larson with PTIG. Please go ahead.
Speaker 15
Hi. Is the chip-enabled stacked card fully live? Can you also talk a little bit about Navigator and Analyzer and Momentum? Are those all GA? If not, when will they be? Thanks a lot.
Speaker 8
Yeah. Yeah. So the chip card, actually Q3, Q4 last year, that's been rolled out for new members that are signing up. They're getting that new stacked chip card experience. Again, the roadmap associated with that is over time moving to a digital wallet. It's already integrated, for example, with Apple Pay. We're really making that seamless opportunity to spend dollars in ways that consumers already do today. I think that's one of the drivers for the strength that we're seeing on the interchange side. That's a key part of our strategy overall. Then just quickly, we announced last quarter the Assist portfolio and maybe building on some comments that I made around HSAs and Steve built in.
We're really trying to drive a very strong value proposition to our enterprise clients around the opportunity with optimal plan design around how an employer can save their costs. This is really important, particularly in this environment today. Analyzer today is rolled out. It's generally available to all of our clients that have 50 HSAs or more. It's essentially using data and insights, benchmarking, best-in-class to show with data to that enterprise, "Here's how you compare from a plan design perspective to best-in-class. Here's what your investment %, contribution %, enrollment % look like." Ultimately, how much money you could save and what is the benefit that you could provide to your employees if you drive more greater adoption. That's a really strong message that we're driving through our enterprise sales conversations this year. Analyzer's out there.
We love the uptake of that product. Navigator, again, sort of a tool that we have highlighted, is focused on the member experience and making more transparent decisions around healthcare outcomes. That is available to our members. That is also driven by transparency mandates as well. We are early in the assist portfolio overall, but I really like this is now introducing products that we are providing to our members and to our enterprises that ultimately drive greater adoption, enrollment, and participation in our products.
Speaker 15
I think it's great. I think this is why Congress supports what you're doing and why all these expansions are in the bill here. And then just quickly, for your 9.9 million HSA members, what I'm hearing is by the end of the fall, everybody's going to have to be using the app, and there will be dual-factor authentication through the app by the end of the fall, which will completely sort of solve your fraud problem here. Did I hear that correctly? And how many people have the app now of those 9.8 million lives? I heard numbers around like 1 million or 2 million, which sounds a little bit low if everybody's going to have to use the app by the end of the fall for authentication purposes.
Speaker 8
Yeah. So again, a really important point here. Number one, I think we are going to be driving app downloads. It's going to be really important. What we're going to be looking at is any active member. So this would be a member that is accessing the platform. Maybe they're checking a balance or they want to change some of their information. In order to do any of those actions or engagements on the platform, you're required to authenticate through the mobile app. Access will only come through the mobile app. I'd caution, though, to necessarily look at app downloads as a reflection of the security because effectively, once access to the platform goes through that experience, it's obviously a lot more secure. That's what we're looking at in terms of how do we secure the perimeter.
You're right in terms of the overall HSA accounts. As an example, at 10 million, we have 1.2 million downloads today. Again, one other comment. We have a lot of members, for example, that could be investors, and they set it and forget it and do not actually access the platform. Again, access is going to be coming through that mobile authentication before the end of the year.
Speaker 15
Congrats on a great quarter.
Speaker 8
Thank you.
Speaker 11
The next question comes from Constantine Davis with Citizens. Please go ahead.
Speaker 3
Thanks. Maybe just changing gears a little bit towards the CDB side. You've now delivered three quarters in a row of pretty good sequential account increases. Can you just talk about where you're seeing growth opportunities right now within those products and any differences in terms of how you're going to market with CDB? Do you sort of expect this growth to be sustainable across the balance of the year?
Speaker 8
Yeah. So again, as we reported out the growth that we're seeing in our other product areas, again, just a reminder that we sell this as a bundled product. As we look at how we're selling that to the enterprise, we're driving that. You have the actual breakout of the account? Yeah. I think it might not be up yet, but the investor presentation that Richard puts on the IR site will have the detailed breakdown of the other accounts. Pretty similar story. It's been the core bundle, right? The HRA products. HRA has been strong for some time now, and it continues to be strong. Notably, we're growing the FSA accounts again, which had been a drag really since the WageWorks acquisition on that FSA line. It's good to see the core CDH bundle growing.
Now, I think on the other accounts on the COBRA side, we've talked about for some time. We've been sort of running off a bit of that business, some of the less profitable books of that business. That is a bit of a drag on service revenue because it's a high unit service revenue product, but less profitable at the bottom line. Call that the unregretted churn there. Then commuter, I think, obviously saw a lot of growth over the last few years with return to office. I think that story is largely complete at this point. While if the company XYZ in New York goes from three to four days in the office, that person's already buying their monthly Metro card. It is just not that much of a lift anymore.
The benefit was when it went from zero to one and from one to three. I think that extra growth from commuter, which drove it in the past couple of years, is now being driven by the core products.
Speaker 3
Got it. If I can just sneak one last one in here. Just following up on the earlier question around some of the newer assist solutions that you've launched this year, can you also give us an update on the HPA initiatives that you launched last year and just how that's being received in the market? Thank you.
Speaker 8
Yeah. So again, I think this is a great product that goes to the enterprise. Again, as we think about what we're trying to accomplish here is to drive enrollment and adoption of a high-deductible health plan. One of the historical barriers to that has obviously been the high-deductible nature of that plan. HPA as a product is meant to effectively eliminate that as a barrier. We are going to the market there through partnership with Patient. The uptake that we see with some of our large enterprise clients is very high in terms of, again, now a new value proposition that we're selling to the enterprise. We like the uptake of that as a product.
I think if we're successful in this value proposition, I think the outcome, hopefully, for employees as they go through the open enrollment process is actually be better educated about the difference between effectively a low-deductible plan and a high-deductible plan that we need to take into account the premiums, the contributions, that effectively the out-of-pocket cost can be net neutral. Therefore, having an HSA, which prepares you for a future medical event, and you've been able to overcome any concern that you might have in the first year with contribution levels that you can drive greater adoption. That strategically is how all of it fits together for us. We like the value proposition. Thanks, Constantine.
Speaker 11
This concludes the question and answer session. I would like to turn the conference back over to Scott Cutler for any closing remarks. Please go ahead.
Speaker 8
Thank you, everybody. That was a very engaging conversation. We appreciate your support. I particularly want to thank our team, Team Purple, for the remarkable results this quarter. I'm really pleased about the progress. As I personally look back on the last five months, I'm more confident that as we've now strengthened and built our team, increased our operational strength and rigor, execute on our strategy, we can make meaningful progress against our mission of saving and improving lives by empowering healthcare consumers. Thank you, everybody.
Speaker 11
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.