Friday, August 14, 2009

Plasticity in Health Care Payments

For better or worse, most legislative attempts at health reform shift costs. The Medicare Improvement Act of 2003, George W. Bush’s landmark reform, made it more feasible to shift responsibility for payment to individuals through HSAs. The current reform legislation underway will likely swing the pendulum back towards employer and government responsibility for payment. The one certainty is that shifting payment dynamics will lead to opportunity for new payment mechanisms.

With HSAs, banks took off after the opportunity to issue cards that would capture a share of interchange revenue. Webster Financial Corporation, for example, paid $26 million for a small bank in a community of less than 4000 people, because it had a strong HSA line of business. United Healthcare founded a bank just to get in on the action. The card vendors, in return, also began to make health payments a specific focus. American Express announced that it would be the new leader in the market for card-driven health benefits administration, although after several years left the market.

While mobile payment mechanisms garner much attention, paying for healthcare with credit or debit cards is still the mainstream. Visa surveys indicate that up to 90% of patients would prefer to pay with plastic. Where can the card vendors go from here? Providing payment mechanisms designed specifically to solve some of the system’s problems: smoothing payments for patients (much like what is called “insurance” today), simplifying revenue-cycles for providers, and perhaps consolidating data on diagnosis and outcomes.

With increased employer responsibility for healthcare, expect employers to continue to be a point of aggregation for card-related payment services. Today, employers and employees miss out on $2 billion in tax exemptions available through qualified high deductible health plans (HDHPs). For employers, this breaks down to about $140 per employee per year in federal payroll taxes that could be saved. The opportunity for the exemption of income is missed because nearly half of people covered by HDHPs do not open an HSA, and many of the accounts opened are not fully funded. Card vendors could increase HSA utilization by automating account opening, contributions, and distributions -- making tangible the tax advantage.

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