Changing Health Care Equation Impacts Claims Administration Health care debit cards could help convert the health reimbursement account from a great new idea into a genuine hot product.

Debit cards have already reshaped the world of flexible spending account administration, and now they appear to be poised for similar, though not as rapid, growth in the world of HRAs.

The same reasons why employers and third-party administrators are migrating to the debit card for FSA administration typically hold true in the world of HRA administration.

These newly created HRAs, which are also commonly called self-directed health plans, have been a major topic of discussion ever since June 26, 2002the date the Internal Revenue Service issued long-awaited guidelines paving the way for pre-tax savings from HRAs to pay routine medical expenses.

Balances in employer-financed accounts can now be carried over, and are expected to further bolster enrollment in FSAs, which have long been dogged by the dreaded use-it-or-lose-it rule. The rule prohibits employees from rolling unused balances over from one year to the next.

However, the migration from current employer indemnity, preferred provider organization or health maintenance organization plans to “next-generation” HRAs is still in the early adoption stages, especially at larger employers.

Using a snapshot from our companys experience, HRA debit card enrollment grew significantly in January. That month, approximately 5% to 7% of the cards we issued were HRA-related. However, most of these were for small- to midsize employers with a very simple “priority type” HRA arrangement.

These types of HRAs have been around for a long time, and simply involve an employer-funded purse to be set up for employees, with an optional FSA wrapped around the plan. The FSA purse typically goes first. Once employees exhaust the FSA, they activate the employer purse. One debit card handles both accounts, and in fact can handle numerous other accounts if the employer offers transit or dependent care as well.

The interesting and developing question at hand is what type of TPA will be the primary driver and administrator behind the HRA-type plans. Debit card technology will bring about diversification in the world of TPAs. In the past, many medical TPAs have shied away from FSA administration, and conversely, there are many TPAs that only administer cafeteria-type plan benefits.

There has been an emerging trend toward medical TPAs that have not administered FSAs to opt for HRAs, partnering with debit card vendors. TPAs will continue to be important allies and partners in speeding FSA adoption, acknowledging that they need to be diligent in their own continuing education on electronic payment systems.

The attraction to use debit cards for administration stems from “reaction to a negative”: the users reluctance to come “out of pocket” twice. In other words, enrollees must write a check and submit to payroll deduction before being reimbursed for uncovered claims.

On a larger scale, the same principle is applicable to HRAs, because FSAs are typically used for co-pays, doctor visits and prescriptions, whereas HRAs require larger out-of-pocket expenses. If people are hesitant to pay out of pocket on co-pays, consider how much theyre going to be opposed to paying out of pocket on $75 or $100.

Using a debit card eliminates the need to pay out of pocket twice, since payments are made directly from an employers advance account, while the employees coverage amount is debited from an FSA to reflect payment of an approved expense. Cardholders can pay for eligible expenses wherever MasterCard is accepted.

Some wags have suggested that an FSA is an “HRA lite,” which is not quite accurate. To gain a better understanding of HRAs, following are descriptions of two types, from the perspective of a debit card vendor.

A priority HRA utilizes similar eligible expense parameters to what an FSA uses, and many of the same advantages apply. Most of the hype and what people are getting excited about are not these priority HRAs, but rather the more complex HRAs that the larger employers are currently developing.

The more complex HRAs that will emerge, especially in January 2004, will require transactions to be split among the appropriate accounts.

For example, many employers are planning to not only share more of the costs with employees, but are aiming to communicate the fact they are sharing, versus passing on the entire costs. Many of these new plans will operate similar to current dental-type plans.

As an example, a typical dental plan might look like this: The employee has a bucket or purse they get for the first $1,000, and then the next $2,500 of expenses will be an 80/20 split. The employer picks up 80% from an employer purse and the employees pay 20% from their purse, likely an FSA. Then the next $1,000 is 100% the employees responsibility, and then insurance kicks in.

This formula can take on many nuances. The key is to work with a debit card vendor that has the ability to customize the plan. The most advanced debit card technologies must have the flexibility to handle the many variations of these new plans.

That level of flexibility and compatibility is essential because electronic payment systems are critical for those types of plans. And since employers would prefer not to inundate health plan members with too many design changes at one time, its prudent for people to become accustomed to debit-card technology for flex plans before moving on to the more complicated HRA plans.

Judging from recent conversations with benefit executives at about two dozen Fortune 500 companies, HRAs and high-deductible plans will eventually be adopted on a mass scale to help health plan sponsors and members alike get a better handle on costs in the face of double-digit premiums and rising medical inflation.

Early in 2003, GE employees picketed their employer because of the rising costs of their pharmacy co-pays. Arming employees with a debit card doesnt necessarily solve all of the problems, but with the increased savings due to higher enrollments and higher contributions, employers might be able to stabilize rising co-pays or increase on a more moderate scale.

While the cards do not guarantee an improvement in the budgeting of health care expenses, they do help people track where they are in the health care equation. The average person doesnt know whether or not theyve met their deductible or how much theyre paying.

At the end of the day, the keys to greater HRA adoption will be found in those details that work to the benefit of employees and employers alike.

Rob Butler is vice president of sales and marketing for mbi, Waltham, Mass., a provider of stored-value debit card systems for administering defined-contribution benefit plans.

Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.

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Changing Health Care Equation Impacts Claims Administration

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