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To keep costs down, insurers are exercising their right under the Affordable Care Act to insist consumers pay their premiums via automatic bank withdrawal. The Department of Health and Human Services is scrambling to make insurers accept plastic.
June 14
The prepaid card industry looks poised to benefit from the expansion of health coverage to millions of uninsured Americans.
Under new rules issued last week by the Obama administration, health insurance companies must allow customers to pay their monthly premiums with general purpose prepaid debit cards.
The provision, one small part of the implementation of the 2010 Affordable Care Act, was designed to ensure that Americans who don't have bank accounts can maintain their health coverage. Consumer advocates had been concerned that insurers might reject prepaid cards, making it potentially more difficult for millions of unbanked, uninsured consumers to make monthly payments.
"For the industry, it's a positive in that it increases the acceptance and recognition of prepaid cards," says Ben Jackson, a senior analyst at Mercator Advisory Group.
The new rules are expected to lead to more partnerships between health insurance companies and prepaid card issuers. But the opportunities may be greatest for companies that specialize in prepaid cards for the health care market.
For example, some employers use prepaid cards to make contributions toward health insurance policies that their employees purchase on the individual market. The usefulness of those programs is currently limited by the fact that not all insurance companies accept prepaid cards as a form of payment. But that will change under the new federal rules.
"I could envision more such products arriving on the market," says Chris Byrd, president of Evolution1, a firm that manages prepaid card programs. "I think there is definitely potential there."
Health insurance companies had resisted a government mandate that they accept specific forms of payment from consumers. That's largely because the insurers often have to pay hefty swipe fees when their customers take advantage of the convenience offered by credit cards, debit cards, and prepaid cards.
For health insurers, the three-year-old law known as Obamacare puts limits on the ratio between administrative costs and payouts for health care services, and swipe fees count toward the companies' administrative costs. That was another factor contributing to the health insurers' opposition.
But the two large card networks that process many prepaid debit transactions, Visa (NYSE: V) and MasterCard (MA), urged the Obama administration to require the acceptance of prepaid cards. Other forms of payment available to people who don't have bank accounts, such as money orders, are less convenient for many consumers.
"Ensuring that no person is denied access to health insurance simply because he or she does not have access to a bank account or credit card is an important goal," MasterCard wrote in a comment letter.
The rules issued last week by the U.S. Department of Health and Human Services do not require health insurers to accept payments by credit card or debit card. But health insurance companies generally accept those cards voluntarily. The acceptance of prepaid cards is spottier.
Among consumer advocates, there are concerns that insurance companies have limited the forms of payment they will accept in an effort to make it harder for less sought-after customers to stay enrolled.
The new regulations do not go as far as Brian Haile, a senior vice president at Jackson Hewitt Tax Service, would have liked. Under the Obama administration's rules, health insurance companies are not required to accept recurring payments using prepaid cards, meaning that unbanked consumers may have to take action each month to maintain their insurance coverage.
"That's just setting people up for failure," argues Haile, whose company has a stake in the debate, since it offers customers the option of receiving tax refunds on prepaid cards.
It may take some time for issuers of prepaid cards to develop strategies for selling to consumers who are currently uninsured and also unbanked. Several companies contacted for this article declined to comment on their plans.
Enrollment in individual health plans available under the health-care law's regulated exchanges begins Oct. 1, giving prepaid companies little time to prepare.
"We'll have to see to what extent they're going to be able to pull this off," says Haile, who expects the prepaid industry's involvement in the health care exchanges to ramp up over time.
For prepaid cards, long seen as disposable products, the health-insurance rules mark another step toward widespread acceptance. Today the plastic cards are used to distribute a variety of government benefits, though consumer advocates remain critical of the fees charged by many issuers.
Green Dot (GDOT), the prepaid industry pioneer, praised the Obama Administration rules.
"We believe this decision is yet another affirmation of the many important and mainstream use cases that exist for prepaid cards," the company said in an email.
"As the Affordable Care Act is rolled out, we believe there is a good opportunity to advertise the use of Green Dot products to consumers who need an inexpensive and convenient way to pay their health care premiums."
