Benefits advisors need to know how debit card technology can help employers make consumer-directed health plans work more smoothly.
As health insurance becomes more complex, employers are turning to the familiar technology to ease some of the confusion associated with the shift to the new plans.
The cards give consumers a way to withdraw pre-tax funds from benefits accounts--including health savings accounts, health reimbursement arrangements and flexible spending accounts--to pay for qualified health care expenses without filing paper claims.
Consumers are already comfortable with debit card technology. The cards offer consumers help with accessing the funds in various employer-sponsored benefit accounts, and they permit consumers to track purchases and balances online, 24/7.
Both health care providers and consumers are embracing prepaid cards because the card systems are so convenient and easy to use. Soon, swiping a benefits card when picking up a prescription will be as common as swiping a credit card at the grocery store.
Back in the 1990s, consumers used prepaid benefits cards simply to make payments. Since then, major credit card associations and card processors have worked together to make the cards sophisticated claim adjudication devices that allow for real-time information retrieval. Modern magnetic-stripe debit cards can pull extensive amounts of financial information from benefits accounts, rather than simply helping a consumer make a payment.
Advances in technology also have transformed the benefits card from a tool that can draw payments from a single account into a multi-account tool. Administrators can stack several different accounts--including FSAs, HRAs and HSAs--on a single card.
A third change, the introduction of automated, 'auto-substantiation' technology, gives card-based systems the ability to verify that benefits card transactions involve health-related products or services. The systems make paper-free transactions possible because they check to see whether purchases of goods or services meet Internal Revenue Service eligibility standards.
The popularity of cards highlights the movement toward greater acceptance of consumer responsibility in health care. Cards are a convenient way to enable consumers to make direct payment from health care accounts to providers. When consumers swipe cards for payment, their awareness of health care costs increases, and they are given incentive to make better decisions about living healthy lifestyles and selecting quality providers to reduce out-of-pocket costs.
Use of debit cards to power tax-advantaged health care accounts has increased steadily over the past several years. It is now estimated that approximately 30% of FSAs use a debit card. Increasingly, employers are asking their administrators to provide a card, and more administrators are offering cards to their employer customers. Innovations this year will further streamline card operations and are expected to accelerate the adoption curve. Industry observers predict that as many as 80% of all FSAs will come with cards in 3 years.
The most significant new development in health care benefit card technology is being driven by an Internal Revenue Service mandate. Currently, all grocery stores, discount stores, department stores and online pharmacies that accept benefit debit cards must have an Inventory Information Approval System in place. An IIAS separates eligible from ineligible items automatically. A benefit card can then be swiped for the eligible purchases only. By Jan. 1, 2009, freestanding pharmacies also must be IIAS compliant. Almost 100 supermarket, discount stores and pharmacy chains already have implemented IIAS, with more planned this year. This will significantly improve the percentage of transactions that can be electronically substantiated, thus reducing the need to provide receipts.
Looking ahead, additional innovations--including the use of benefit cards to pay wellness program rewards, verify eligibility and provide credit lines--all on a single card--may become standard features. These changes, which further highlight the movement toward consumerism, are being tested on a limited basis in the market today.
In this age of consumer responsibility, health plans are starting to reward consumers who have achieved their goals in a wellness or preventive care program. These programs encourage employees to be proactive about their health. The wellness reward card can be programmed to work at health care locations only, or at any locations where branded debit cards are accepted. Either way, the consumer has a greater choice of outlets for spending the reward than is the case with the store-brand gift cards that early incentive programs used.
Another trend in card technology is the development of eligibility verification systems that provide instant confirmation that a patient has health coverage. By accessing this information using the card, patients and health practitioners can reduce use of time-consuming manual verification methods. The cards would be capable of at least two verification processes: checking to see that a patient has health coverage, and checking to see that the patient has enough funds in benefits accounts to make the required payment.
In the event that a consumer has insufficient funds, a line of credit can be added to the card. This eliminates issues associated with the "last swipe," when there might not be enough money in the account to make the payment. Additionally, this feature gives patients peace of mind. Patients know that they can use the cards to handle large medical bills and pay the bills back over time.
Next generation changes
One of the big challenges associated with consumer-driven health care programs is how to enable payment at the point-of-care. This is standard in pharmacies today, but not widely used in other health care settings. However, that is starting to change, and soon, cards will integrate with these new real-time adjudication processes as they are implemented. While visiting the doctor, patients will know their out-of-pocket costs in real-time, enabling the provider to collect payment and eliminating the need to collect money later.
As acceptance of cards grows, consumers will want to swipe their cards in as many places as possible to handle their health care needs. This means accessing a wider variety of heath-related information using the card. For example, consumers may want health records, rather than just financial information, accessible using the card. Fortunately, financial institutions and the financial payment network are highly trusted by consumers today.
Obstacles to widespread adoption
While many of these innovations are in the trial phase, there are technological barriers that must be overcome before widespread adoption occurs. First, the information systems that support these cards have historically been financial networks.
As we move forward, the card will integrate with applications and databases in a variety of systems operated by diverse stakeholders and accessed by a variety of networks. Ideally, card companies, TPAs, health plans and banks should be able to use an open, expanded architecture to share consumer financial and health information efficiently.
Arguably, an even bigger hurdle is getting health plan providers to adopt these solutions. Early adoption will likely be driven by large medical groups with the resources and scale to justify significant investments in systems and reengineering, combined with one or more major health plans.
In addition, some consumers may be hesitant to associate credit issues with benefits. For some consumers, that could exacerbate some existing credit problems.
While it's hard to predict with certainty which of these card-based solutions will gain momentum, we can safely say that the consumer-directed movement is here to stay, involving consumers more directly in their health care and how they spend their health benefit dollars.
Chris Byrd is executive vice president of operations and development at Evolution Benefits Inc., Avon, Conn., a prepaid benefits card provider. He can be reached at