Since early 2003 the Bush administration has promoted consumer-driven health care, a transition away from health insurance fully funded by employers, with a broad menu of options, including high-deductible plans.
The Medicare Modernization and Improvement Act of 2003 created tax-advantaged health savings accounts to complement high-deductible plans, permitting consumers to own health-care assets and to carry them from employer to employer.
Consumer-driven health care has created the need for two kinds of financial products: credit products for financing coverage gaps and savings vehicles for holding accumulated balances.
The transfer of responsibility to individual consumers for the first $1,000 to $2,000 of their own health-care spending could place many consumers in the position of having to borrow funds, particularly early in the year, to finance this initial spending. On the other side of the equation, HSAs tied to high-deductible health plans require both a savings vehicle to invest balances and a mechanism for accessing these funds, ideally without creating cumbersome reporting requirements.
Companies are rapidly responding. The seven largest U.S. health insurance companies now showcase consumer-driven products, increasingly developed and marketed in conjunction with major financial institutions.
However, as the market continues to grow it is increasingly clear that the regulatory environment has not evolved to support this administration's policy.
The following are of particular immediacy and relevance.
Uncertainly in prepaid product regulation. The Federal Reserve Board's recent rule applying Regulation E to payroll cards continues to trouble the card cognoscenti. Most market participants interpret the Fed's conclusion that prepaid payroll cards are subject to Reg E to mean that most HSA debit cards and hybrid HSA/FSA cards are not subject to Reg E reporting requirements. However, the continued lack of certainty is slowing product innovation.
Similarly, the Federal Deposit Insurance Corp.'s outstanding rulemaking on prepaid products, which could bring a broad range of payment instruments under the Federal Deposit Insurance Act, needs to be brought to closure.
Lack of coordination in data-sharing laws. The convergence of health and financial products was not anticipated by the Health Insurance Portability and Accountability Act, whose focus was to setting the highest standard for patient information. The Gramm-Leach-Bliley Act was similarly well intended. However, as currently crafted their joint effect is to make partnership between health care and financial services virtually impossible.
Two critical areas are the sharing of balance information to facilitate automation of payments between consumer and insurer accounts, and the sharing of basic name and address data for product marketing. The HIPAA exception for "value-added products or services" has been limited to those strictly related to health. The joint marketing exception set forth in Gramm-Leach-Bliley's Title V, which is intended to encompass such cobranded products, cannot be fully effectuated in light of the HIPAA value-added limitations.
Lagging credit underwriting guidelines. Innovative credit products to finance health-care services are also under development. Health-care lending, however, is a new market. Underwriting, account management, and pricing strategies that financial institutions have employed in the past to protect their interests in emerging markets have faced resistance from regulators. Without specialized regulatory guidance that enables financial institutions to address this need on a broad scale, potentially narrow margins may discourage even the most bullish.
Lagging liability rules. Confusion remains over liability for data breaches and other mishaps resulting from collaborations related to these products. While certain data-breach legislation pending in Congress would clarify this to some extent, the conflicting obligations of HIPAA and Gramm-Leach-Bliley's Title V still confuse the landscape and create litigation risk.
Until the regulatory landscape is clarified, banks that follow health insurers to the altar hoping to spawn exciting hybrid health and financial services products will be disappointed to discover many barriers.
Even more, these barriers will severely limit the willingness of both financial institutions and health-care concerns to invest in the requisite technology to bring about the savings in claims and payment processing promised by consumer-driven health care.
