HealthEquity: Riding Regulatory Waves to Margin-Driven Growth

The confluence of legislative tailwinds, operational resilience, and margin expansion is positioning HealthEquity (NASDAQ: HQY) as a standout play in the healthcare savings sector. With proposed HSA reforms poised to unlock millions of new participants and billions in assets, coupled with a robust financial turnaround marked by declining fraud costs and rising profitability, the company is primed for sustained outperformance. For long-term investors, the time to act is now.

Legislative Tailwinds: Expanding the HSA Universe

The proposed 2025 HSA expansion legislation, if enacted, could redefine the HSA landscape. Key provisions include:
1. Medicare Part A Compatibility: Ending the exclusion of Medicare Part A enrollees from HSA contributions opens the door to an estimated 10 million+ older workers and retirees.
2. Income-Phased Contribution Limits: Lower-income households gain flexibility, potentially boosting participation and contribution volumes.
3. Simplified Spousal Catch-Ups: Consolidating catch-up contributions into single accounts reduces administrative friction and encourages dual-income households to adopt HSAs.
4. Expanded Eligible Expenses: Fitness memberships and telehealth reimbursements now qualify, driving transaction activity and account utilization.

These changes directly benefit HealthEquity, which manages over 9.9 million HSAs. The company's technology platform—already processing $31.3 billion in assets—is well-positioned to handle system updates, member education, and compliance. The legislative push aligns with the company's stated goal of becoming the “HSAs of choice for every American,” creating a multi-year growth catalyst.

The visual would show a clear upward trajectory, highlighting the margin improvement from 41% to 42% in just one year.

Operational Resilience: Fraud Reduction and Efficiency Gains

HealthEquity's Q1 2025 results underscore its operational discipline. Fraud-related costs plummeted to $3 million—down from $11 million in Q4 2024—thanks to advanced AI-driven fraud detection systems and streamlined underwriting processes. This reduction not only protects margins but also enhances member trust, a critical differentiator in a competitive space.

Meanwhile, the company's core business metrics shine:
- Revenue Growth: 15% year-over-year to $330.8 million, driven by a 29% surge in custodial revenue and 14% rise in interchange fees.
- Asset Momentum: Total HSA assets grew 15% to $31.3 billion, reflecting higher average balances per account.

The scalability of HealthEquity's platform is evident in its ability to process 9.9 million accounts while maintaining industry-leading margins. Management's focus on automation and data analytics is paying dividends, as seen in its 19% YoY EBITDA growth to $140.2 million.

Margin Expansion: A Dual-Powered Engine

The company's margin story is twofold:
1. Top-Line Leverage: Legislative reforms will drive incremental revenue through higher account activity (e.g., more contributions, DPC reimbursements, and fitness transactions). Custodial revenue, which grows with assets under management, stands to benefit disproportionately.
2. Bottom-Line Discipline: Fraud cost reductions and process automation create a “double lift” for profitability. Management's FY2026 guidance—$530–550 million in EBITDA—implies a margin range of 41–43%, signaling sustained efficiency gains.

The visual would highlight HQY's outperformance, showing a stock price rise of ~20% versus the S&P's flat trajectory, reflecting investor confidence in its strategic execution.

Why Act Now?

HealthEquity's combination of regulatory tailwinds, margin resilience, and asset-driven growth creates a compelling “buy” case:
- Catalyst Timing: The 2025 HSA legislation is expected to pass by year-end, with implementation starting in 2026. Early movers will capture first-mover advantages in system readiness and member outreach.
- Valuation Opportunity: At 33x 2026 EBITDA estimates, the stock trades at a discount to peers, offering upside as margins expand and legislative benefits materialize.
- Defensible Moat: HealthEquity's technology platform, scale, and relationships with employers and financial institutions create high switching costs for competitors.

Risks, but Manageable

Legislative uncertainty and compliance complexity are valid concerns. However, HealthEquity's proactive approach—evident in its early system updates and member education campaigns—mitigates risks. While fraud costs remain above targets, the trend line is clear and improving.

Conclusion: A Margin Play with Legs

HealthEquity is not just a beneficiary of HSA reforms—it's the engine behind their success. With a platform optimized for growth, a proven track record of margin expansion, and a secular tailwind from a healthier HSA ecosystem, this is a stock built to outperform over the long term. For investors seeking a leveraged play on healthcare savings innovation, the time to position is now.