As payment ecosystems go, the health care marketplace is perhaps the most complex. To advance electronic payments in this arena, insurers, health care and merchant service providers, financial institutions, as well as consumers, must all be on board. The intricate coordination that must be achieved is why the health care marketplace has been slower to develop than other verticals.
But MasterCard Worldwide's decision to extend its multi-year contract with the banking division of OptumHealth Group to issue MasterCard-branded health care payment cards is a sign that the electronic conversion of paper-based health care payments may be gaining momentum.
"A key component in card adoption and usage is ensuring availability of these card products through relationships with issuing banks and program managers," said Jennifer Vanderwall, Senior Business Leader, Healthcare Solutions, MasterCard. By having access to OptumHealth Bank's over 2 million health care cardholders, MasterCard is able to reach "a significant audience," she added.
Vanderwall said MasterCard's deal with OptumHealth includes the accounts the health and wellness company manages for United Healthcare Services Inc.
According to a November 2008 report prepared by the Office of the Actuary, Centers for Medicare & Medicaid Services and the Department of Health and Human Services, health care expenditures in the United States are projected to hit $4.3 trillion in 2017, more than doubling the $2.1 trillion spent in 2006. As a percentage of gross domestic product, spending is expected to reach 19.5 percent by 2017, up from 16 percent in 2006. "That represents a tremendous opportunity for electronic payments," Vanderwall said.
She cited a 2008 MasterCard survey that reported two-thirds of doctor's offices and nearly 90 percent of hospitals use electronic payments. Additionally, almost all large medical practices (defined by MasterCard as offices of five or more physicians) accept plastic, Vanderwall said. Such figures lead her to conclude that "there's certainly demand from both consumers and providers for electronic payment options."
With skyrocketing health care costs and employers cutting back, or eliminating, insurance to employees, health care payments are undergoing a transformation through implementation of the Consumer Directed Health Care (CDHC) model.
Under CDHC, health care providers collect directly from patients, not insurers. Therefore, CDHC places more of a burden on consumers. But with that comes greater control over what products and procedures they utilize. Proponents of CDHC believe that when consumers take greater ownership over their health care choices, and pay more out-of-pocket expenses, they will make wiser decisions.
One driver of CDHC adoption is prepaid card programs. The three primary types of programs are employee-funded flexible spending accounts (FSAs), employer-funded health reimbursement accounts (HRAs) and employee- or employer-funded health savings accounts (HSAs). Vanderwall said the first FSA cards were MasterCard-branded.
A 2008 Celent LLC report estimated consumers spent $250 billion in out-of-pocket health care costs in 2007. But only $8 billion of that was paid via prepaid health care cards tied to FSAs, HRAs and HSAs. If 10 percent of the remaining $242 billion migrates to electronic payments, industry players may achieve $363 million annually, not including processing fees, finance charges and other revenue streams, the Celent report said.
Vanderwall believes that to reap that revenue, consumers must be informed of the advantages of putting health care payments on prepaid cards. "Educating consumers about the ease and convenience of using a payment card to access funds in their tax-advantaged accounts are paramount to wider adoption," she said.
"For example, MasterCard cards issued under the agreement with OptumHealth Bank can be used as a form of payment for eligible health care expenses, eliminating the need for employees to file lengthy, paper-based claims for reimbursement," she said. "Eligible health care expenses include: copayments, deductibles, prescriptions, vision care and certain IRS eligible, over-the-counter items. Payment cards make it easier to pay for health care expenses without extensive paperwork."
According to Vanderwall, MasterCard has seen the greatest approval from health care providers. Office managers labor under the burdens of back-end paperwork and patient billing. They must also deal with patients confused and frustrated by the insurance claim process.
"Providers count on patient payments to keep their business going, and that's where we've seen the most satisfaction from providers as a result of accepting card payments," she said.
"In fact, a recent MasterCard survey shows that physicians cite patient convenience, safety and security for their office; guaranteed payment; and ease of recordkeeping as among the top benefits of payment card acceptance."
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