Pay with Plastic

Although consumers learned long ago to just “put it on the card,” the healthcare business has always operated in its own universe. But growing use of employer-run flexible-spending accounts and the recent introduction of consumer-driven plans coupled with health savings accounts have spurred renewed interest in medical debit cards that link directly to healthcare-specific bank accounts.

“These cards are expanding dramatically,” says Dennis Stover, senior vice president of corporate development at Salt Lake City-based HealthEquity Inc., which contracts with health plans to act as a patient advocate. “You’re going to see an explosion in these types of cards.”

For now, usage remains fairly low, with only about 1.5 million of the 20 million FSA holders in the United States using any kind of payment card, says Chandy Chandrashekhar, a vice president and partner at Booz Allen Hamilton, a McLean, Va.-based consulting firm. And those cards typically don’t link directly to the FSA account; instead, they’re linked to a credit account, and patients must substantiate purchases for later reimbursement. But efforts by the federal government to steer people toward high-deductible HSAs changes the landscape. “With HSAs,” says Chandrashekhar, “what used to be the employer’s liability is now the member’s liability.”

Chandrashekhar predicts that tax incentives and the ability to roll over money year to year—unlike FSAs or similar employer-sponsored health reimbursement accounts—could push consumers to open as many as 20 million HSA accounts over the next five to seven years. Further, retail pharmacy chains like Walgreens and big technology vendors “are really promoting it,” he says.

The big factor, however, is HSA adoption. “Prepaid cards or hospital cards don’t make a whole lot of sense unless they’re linked to a health savings account,” says Joel Bergenfeld, CEO of Century City Doctors Hospital in Los Angeles, which reopened as a 178-staffed-bed physician-run facility in August 2005 following a Tenet Healthcare Corp. closure. HSAs create a “huge benefit” that will drive more card usage, he says. Century City already has plans for a “patient affinity card” that patients could use to prepay for ancillary services such as better meals or pay-per-view movies.

But cards aren’t necessarily a path to point-of-sale purchases—thanks to the healthcare industry’s oft-maligned claims process. And although prepaid cards could work well for some transactions, Chandrashekhar notes that “if you have a $35,000 surgery, a prepaid card isn’t going to help you.” Bergenfeld says hospitals may be able to draw a credit line against a prepaid card for unpredictable procedures such as surgery, but “until the doctor goes in there and makes the final decision on the table, you just don’t know what it costs.”

—Michael Grebb