Monday, February 4, 2008
Boston-based research and consulting firm Celent LLC estimated consumers spent a whopping $250 billion on out-of-pocket health care costs in 2007; $242 billion of that was paid for with traditional payment methods: checks, cash, and credit and debit cards.
The remaining $8 billion was accounted for by health care cards – flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement accounts (HRAs) – tied to either employer-funded accounts or demand deposit accounts (DDA) such as savings or checking accounts.
Celent predicts that if only 10% of that $242 billion migrates to electronic health care payments, with an assumed average interchange rate of 1.5% per transaction, the payments industry can expect to reap $363 million annually, not including processing fees, finance charges and other revenue streams.
The CDH model
The sweeping changes taking place in the health care sector are driving this migration away from paper-based payments and toward electronic payments. Health care costs in the United States are skyrocketing, employees are increasingly unwilling to fund expensive benefits packages, and consumers have been forced to pay for more and more of their own health care.
U.S. Census Bureau data shows consumers can expect to pay over $1,000 annually in out-of-pocket health care costs by 2012, up from under $800 in 2002.
With this shift away from a third party payer model – with insurance companies footing the bill – to a first payer or consumer directed health care (CDH) model, health care providers are forced to collect from individual consumers, not from insurance companies.
That's where payments comes in. As doctors' offices and the emergency rooms function more like retail environments, patients will swipe their payment cards at the POS and doctors will know in real-time if consumers have the funds available to pay for particular procedures.
But we are not there yet. Although electronic payments promises to benefit everyone in the health care sector by reducing overhead costs and time spent managing the paper-based information flow, shrinking settlement times with insurers, creating greater transparency in health care costs for consumers, and giving consumers greater control over their health care, many factors have hindered this implementation.
Health care payments abroad
For one thing, providers and consumers have not been educated as to the benefits of electronic payments. Also, payment entrepreneurs have found health care's obsolete payment systems hard to dislodge. Systems of communication for the transmission of health and insurance-related data back and forth between insurers, employers, providers, government agencies and financial institutions have not been put in place.
As for many sectors of electronic payments, such as in prepaid and smart cards, the United States lags behind the rest of the developed world.
According to Belgium-based Eurosmart (www.eurosmart.com), an international association committed to expanding the world's smart card market, Germany has approximately 80 million health care smart cards in circulation and France has 60 million using its Sesam-Vitale system. Even the tiny Republic of Slovenia has issued about 2 million health care cards.
In comparison, research by McLean, Va.-based consulting firm BearingPoint Inc. found that only 18.7 million Americans were enrolled in CDH plans – FSA, HRA and HSA accounts combined – in 2006, out of a total population of over 300 million.
Outside of the United States, almost every other country has a substantially state-run or state funded health care system, which facilitates implementation of electronic payments via health care cards issued to every citizen.
The United States, however, with its stratified national, state and local government structure, and with its business model being a free marketplace driven by innovation and consumer demand, is not suited to rolling out health care payment cards at a national level.
Roadblocks toward adoption of health care payments are lack of coordination among the parties involved, the absence of product/service-level data in "carve-out" transactions, lack of terminals and hardware to facilitate payments at the point-of-service and the overall resistance to change of the paper-dominated world of health care.
"The industry as a whole is using a methodology of paperwork as tried and true," said Ted Svoronos, Certified E-Commerce Consultant for Irvine, Calif.-based Group ISO. "They have been using this method for many years, and though it is not very efficient, it works."
Dovetailing with the industry's intransigence to going electronic, the basic infrastructure for accepting health care payment cards is not in place. Most doctor's offices and hospitals are not equipped with terminals necessary to access a patient's electronically stored medical history, or to accept payment for medical services with a prepaid debit card tied to an FSA/HRA/HSA account.
According to Leonard Bruckman, President and Chief Executive Officer at virtual information technology firm Datazoid Inc., "For the most part, consumers who have enrolled in these [CDH] programs have the responsibility of determining and tracking eligible expenses when using a prepaid card linked to [health care] accounts. This can be a daunting, time consuming task which is beyond the reach of most consumers.
"Determining what expenses are eligible, particularly when a consumer makes a purchase that includes both eligible and noneligible expenses, can be very difficult."
Therefore, in order for payments to take off in the health care field, items purchased at mixed-use retailers such as Wal-Mart Stores Inc. or Walgreen Co. stores must be parsed or bucketed by a process called auto-substantiation.
Items covered as a qualified medical expense under a health insurance policy – such as glucose monitors or blood pressure sleeves – need to be automatically differentiated in real time at the POS from other purchases, such as toothpaste and hair conditioner.
At most pharmacies today, real time adjudication does already take place, but only for prescription drugs.
Kaushik Roy, Director of Product Marketing for Financial Services and Payments at Kabira Technologies, said the primary electronics networks are in place to handle the complex flow of information between insurer, provider and financial institution.
"It's a dynamic system," he said. "As is happening in Europe, the payment networks are enabling the exchange of financial transactions … but insurance companies and providers need to hook up in real time. What needs to happen is that all these systems need to talk to each other."
Svoronos agreed. "Processing for this type of card program can definitely be done," he said. "But the key will be for multiple platforms to be able to talk to each other on the back end so that transactions are routed properly, safely and securely.
"The accounting protocol has to be robust and even include something such as a live dashboard feature where each employer would be able to monitor the success and use of the program by the employees or individuals. Also the employee or individuals should be able to look at his or her account and see where they stand."
The answer is in interoperability: the ability for patients, providers and payers to be able to communicate over open and accessible data networks.
"We are doing that today," said Daryl Richard, spokesperson for United Healthcare Services Inc.
The Rosetta Stone?
United Healthcare handles policies for 28 million individuals nationwide. Policy holders are given an electronic eligibility card that is network-branded with the MasterCard Worldwide logo. The card integrates an individual's medical history with insurance information.
The consumer can log on to United Healthcare's Health Insurance Portability and Accountability Act- (HIPAA) compliant Web portal (www.myuhc.com) to view his or her private account information.
According to Richard, United Healthcare has worked directly with health care providers for real-time adjudication of insurance claims at the point-of-service.
With a swipe of the patient's mag stripe eligibility card, the provider has Web access to four functionalities: whether the procedure or service is covered under the patient's plan, the patient's health record, the ability to process that claim in real time, and what if any additional expenses not covered by the plan are to be charged or debited from the patient's private DDA account.
But United Healthcare has gone a step further by starting its own bank, Exante Bank – the only insurer to have done so, said Richard. By bringing insurance and financial services under one roof, Richard claims it simplifies and quickens the billing process, giving a "full circle patient experience."
While United Healthcare employs the traditional mag stripe on its cards, with the cardholder's account information and medical history stored on United Healthcare's servers, the much talked about smart card technology is seen by the payments industry as the leading alternative.
Health cards based on smart chip technology have a consumer's entire medical history stored on a microchip embedded in the card.
According to a February 2007 report issued by the Smart Card Alliance, a nonprofit organization representing smart card and radio frequency identification (RFID) technology vendors, the smart health card "is distinguished from other types of cards by its ability to transport confidential data securely from cardholder to practitioner and by the convenience of providing data immediately.
"Patient information can be assessed and controlled by the patient, using a card reader connected to the provider's computer or to the consumer's computer at home."
According to the Smart Card Alliance, the main benefit of smart cards is in their interoperability. "Smart health cards can help bridge the information and communication gaps that exist between health care providers without the prerequisite of an EMR [electronic medical record] or integration with a data exchange."
FSAs, HRAs and HSAs are the three types of health insurance accounts tied to electronic payment cards that industry experts believe have the greatest potential for growth.
FSAs are given to the employee by the employer, and are often funded through payroll deductions. The employer opens the account, and the employee funds it. FSA is a "use it or lose it" account; any funds left over at the end of the year go back to the employer. If an employee loses his or her job, the employee loses the account as well.
HRAs are similar to FSAs in that if an employee changes jobs, the employee loses the account. But HRAs differ from FSAs in one key aspect: HRAs are opened, owned and funded by the employer to reimburse employees for covered medical expenses. The employer sets the yearly contribution limit, too.
But the type of account getting the most ink is the HSA, a tax-exempt account created by an act of Congress in 2003 designed to give control back to consumers and lower health care costs.
HSAs are popular with employers because of the high deductible that an employee must pay before an employer steps in to pay for further medical expenses. A yearly contribution limit of $2,850 has been set for an individual and $5,650 for a family.
Unlike FSAs and HSAs, the unused funds in an HSA at the end of the year can be rolled over to the next year. Furthermore, an HSA follows an employee from job to job.
But HSAs go a step farther. "[HSAs] are like IRAs," said Kirk Hoewisch, President of HSA Bank in Sheboygan, Wisc. "Once you hit 65, you can spend it however you want."
An employee has no incentive to stop spending with an FSA or HRA account, said Hoewisch, because it isn't the employee's money. But because HSAs are employee-funded, employees have a stake in how that money is used, are more discerning in what they use it for and are less willing to waste it.
Using HSAs, said Hoewisch, insurers are "amazed at how their claims drop." HSAs, therefore, coupled to payment cards, seem to align better with the CDH model, giving consumers greater control over their health care while at the same time reducing claims costs for payers.
The issue of privacy is perhaps the biggest stumbling block toward the broad establishment of electronic payments in health care. It is horrendous when a consumer's bank account number is stolen. But it is infinitely worse if that consumer's medical history is taken as well.
A big push toward making the system function properly almost demands that consumers' entire medical histories be stored on plastic in some form of EMR. This would free up time now involved with paperwork and the locating of medical records while at the same time decrease the amount of medical mistakes at the time of service, as in the case of an emergency room visit.
But the downside to EMRs is that they might be prone to identity theft. So what safeguards will be put in place to protect this sensitive data?
"HIPAA compliancy, KYC (know your customer) and other regulatory acts must be kept in mind while adopting this new experience with emphasis on security and compliance," Svoronos said.
"A few points to keep in mind when looking to adopt a program are … their security measures, identity authentication and validation – to make sure that the identity of the individual has truly been vetted. Is this really Mr. Smith using this card program? How do you know, and is he trusted?
"If the program is given to the individual by the employer it will be the employer's responsibility to know the true identity of the employee."
HIPAA was enacted in August 1996 to ensure that all payers and health care providers comply with certain privacy and safety regulations concerning the storage, maintenance and transmittal of patient health care information. The Security Rule explicitly covers electronic protected health information, as well as the steps businesses and organizations must take to be HIPAA compliant.
Svoronos mapped out what needs to take place. "[The payments industry] must take into account what information will be placed on the card, what information will be available to the health care institution, what information will be available to the merchant provider. … Also, keeping in line with PCI [the Payment Card Industry Data Security Standard] and other industry compliancy, what information will be transferred back and forth for billing, statement and processing purposes."
Easier said than done. "Compliance is a big piece of the puzzle," Hoewisch said, "bigger than technology."
"As with anything," Svoronos said, "as long as we can bolster consumer confidence, make the experience simple and keep it very secure, I'm sure that the adoption rate will be quite favorable."
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