The market for prepaid cards tied to health insurance plans and wellness programs has been slow to develop. But 2011 may be the year the health care market and the prepaid card industry converge in a big way.
The main driver of market growth is economic. In a Fidelity National Information Services Inc. (FIS) webinar entitled Wellness Programs – What does the future hold?, Laurie Knutson, Product Strategist in FIS' Healthcare and Wellness division, said the rise in health care costs is unsustainable.
According to Knutson, such expenditures are currently about $2.5 trillion annually in the United States, up from $700 billion in 1990. Employers' health care costs increased almost 8 percent in 2009, she added.
The chief reason costs are so high is chronic disease, which causes 75 percent of national health care expenses, according to statistics cited by Knutson from the Centers for Disease Control and Prevention. Chronic disease is related to such behaviors as smoking, poor nutrition and lack of exercise.
One way to reduce health care costs is by employers implementing wellness programs that incentivize workers for completing smoking cessation, stress management and weight loss programs. The most popular way to reward employees for exhibiting healthy behavior is via prepaid cards, according to Chris Byrd, co-founder and Executive Vice President at Evolution Benefits Inc. (EB).
"If you get money on a prepaid card, it's a very high-value reward from the employees' perspective," Byrd told SellingPrepaid. "So the prepaid debit cards have the highest return on investment in that sense to the employer."
Byrd said employers win because wellness programs help employees make healthier choices, which results in more productive employees who spend less time not working due to illness. "What the employer spends on incentives and rewards to employees to get them to participate in these programs … more than pays for itself," he added.
The other primary cost reducer is accomplished by shifting the burden of paying health care costs onto consumers. If consumers recognize they have to pay for more of their own health care, they will take better care of themselves to reduce costs, the argument goes.
The consumer directed health care model utilizes prepaid cards tied to employee-funded flexible spending, employer-funded health reimbursement and employee- or employer-funded health savings accounts. Byrd said EB has seen steady growth in the number of consumers using its cards. Fifty percent of consumers who have health insurance accounts tied to cards processed by EB now use the cards, he said. "If you turn the clock back three or four years, that number was probably in the high 20s," he noted.
Byrd attributes the reason for that growth to the increased efficiency of the cards. He said auto-substantiation rates (that ensure the cards are being used for IRS-approved health care-related purchases) are in excess of 90 percent on the highest performing cards in EB's portfolio.
That means insurance companies and third-party administrators of insurance plans are not wasting as many resources on determining what costs are approved and what are not, since they are being taken care of electronically at the POS, Byrd explained.
Furthermore, Byrd said multiple purse technology allows cards to have more than one health insurance account or double as wellness and incentive cards, with one "purse" dedicated to the insurance account and one to the wellness program.
Byrd said the health care card industry was exempted from the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. However, Byrd is concerned that health and employee benefits cards will somehow get caught up in the implementation of the Durbin Amendment to the Dodd-Frank Act, even though the cards were excluded from the law under the general-use prepaid card exemption.
As for the new health care reform law, The Health Care and Education Reconciliation Act of 2010, Byrd believes it may work in the industry's favor because the law fails to bend the cost curve, something the cards accomplish.
"And what that means is that these consumer directed approaches to health insurance and health care coverage [are] likely to continue to gain adoption, to gain favor, to be used by more and more employers," he said. "All the surveys that have been taken since health care reform was passed confirm that fact. The products are continuing to grow. So the underlying market in which we operate continues to grow. At the same time, more and more people are using cards to access these various accounts." 
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