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Fully covered -- but underbanked

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Insurers have historically relied on strong direct relationships with employers and providers as part of their core group business, so their interaction with certain consumers has been minimal — at least from a billing and payment perspective.

With the Patient Protection and Affordable Care Act (PPACA) in effect, the individual policy business is set to grow tremendously, bringing with it non-traditional customer segments like the unbanked and underbanked, to the ranks of the insured. 

However, due to their varying levels of access to traditional financial services, members of this market segment struggle to pay premiums through traditional methods such as debit or credit cards. This requires insurers to come up with new mechanisms to communicate and work efficiently with consumers. The insurers who do so effectively will stand out from their competitors — and increase their appeal to the agents and brokers in the public exchange qualified health plan (QHP) market.

The first step of the innovation process is to identify reliable, convenient and affordable payment options for the cash-centric consumer who enrolls via either the state-based exchanges or the federally-facilitated marketplace.

What are the key questions to be answered about cash consumer payments?

Insurers often ask whether cash consumers should really be a top QHP marketing priority.

The short answer is “yes,” for the following reasons:

  1. More than one-third of all U.S. households are either unbanked or underbanked — 8.2 percent are unbanked and 20.1 percent are underbanked. It seems likely that a higher percentage of the uninsured falling into this category.
  2. Cash is the leading payment instrument for several expenditure categories, including medical services and personal services.
  3. Even higher-income consumers may prefer to pay some or all of their bills with cash.

Additionally, there is an overall agreement in the industry that providing a range of safe, convenient and affordable payment options increases on-time collections across all customer segments and all industries. This may be even more true for cash consumers, as they are traditionally offered a much more limited range of payment options than their banked counterparts. Offering those consumers a cash-payment option helps insurers differentiate themselves and better attract and retain these new customers. 

Insurers also wonder where the money to support a cash-payment option will come from.

There is no easy answer to that question, but insurers could absorb the costs, find a way to pass the costs on to the consumer, or get a third party to pay.

What does HHS say?

The U.S. Department of Health and Human Services (HHS) set minimum requirements for payments to exchange QHPs in a regulation:

§ 156.1240 Enrollment process for qualified individuals.

(a) Premium payment. A QHP issuer must –

(1) Follow the premium payment process established by the Exchange in accordance with § 155.240.

(2) At a minimum, for all payments in the individual market, accept paper checks, cashier’s checks, money orders, EFT, and all general-purpose pre-paid debit cards as methods of payment and present all payment method options equally for a consumer to select their preferred payment method.

(b) [Reserved]

Interestingly, the payment methods listed above that cater to cash-centric consumers — cashier checks, money orders and general-purpose pre-paid cards — all have fees that must be borne by the consumer. These ‘convenience fees’ are not the only disadvantage linked to these methods of payments, though.

A money order could cost $1 to $10, and the hours of the businesses that offer them tend to be limited. Getting a money order is also a time-consuming, error-prone process.

General-purpose prepaid cards may work better in some ways, but they often come with complicated fee structures. 

How are insurers and other industry players responding?

For the moment, many insurers are focused on implementing the minimum requirements. With so much ongoing change in the industry, even more are taking a wait-and-see approach that may hurt them in the future.

The importance of having convenient, reliable and affordable methods of payment available to cash-centric consumers (with fees ideally covered by the insurers), has been highlighted by many advocacy organizations across the country as the right choice. 

The fair premium payment policies brief, authored by Julie Silas of Consumers Union to inform the issue in California, is a clear example of that philosophy. In the brief, Consumer Union recommends that plans participating in Covered California (California’s state-based exchange):

Accept alternative cash payment systems that allow individuals to use cash for electronic premium payments, such as at Western Union, 7-11, or Neighborhood Payment Centers. We urge that any cash payment systems meet the following criteria in order to participate in Covered California:

  • No-fee transactions;
  • Sites located in low-income communities;
  • Sites accessible to public transportation;
  • Sites open during convenient hours, such as evenings and weekends;
  • Sites that accept various forms of payment, such as cash, cashier’s check, money order, or check
  • Sites that offer services in Spanish (and that provide information about how to get help in other languages);
  • Sites that confirm payments through a variety of different methods (paper receipts, e-mail confirmation, etc.); and
  • Privacy and security protections, as required under the ACA.

What does Silas mean by ‘no-fee transactions?’ One way of interpreting ‘no-fee transactions’ is ‘no consumer fee transactions’ — that is, the premium payment fees are absorbed by the insurer. 

Of course, when the fees associated with paying the premium are absorbed by the insurer, these become part of the payer’s administrative fees and are included in the medical loss ratio (MLR) calculation, thus becoming a burden on the insurer, and possibly reducing the insurer’s incentive to accept these alternative payment methods. 

However, making payments easy for members also benefits insurers financially by allowing them to reach new customers, increase customer retention and satisfaction and reduce the operational costs of dealing with late and overdue payments. In the end, the new revenue and operational efficiency cost savings should more than compensate for the cost of absorbing payment fees. 

What other alternative methods of payment has the industry experimented with and what can we learn from them? 

Below is a list of three interesting payment initiatives: one at a national level and two at the state level, focused on family and child health care, that are worth mentioning:

1) Four years ago, the Florida KidCare program added a new option to make cash payments via the 600 Fidelity Express locations available throughout the state. In this case, the model adopted was to have the consumer pay a $2 convenience fee associated with this method of payment. 

Although $2 is a hefty fee, given that the majority of payments are between $15 and $20 per month, it is a step in the right direction.

2) The Medi-Cal for Families Program, even in its previous form as the Healthy Families Program, accepts cash payments at Western Union locations at no charge to the consumer.

At this time we are not sure if the cost is covered by Medi-Cal (California’s version of Medicaid) or a third party, but this is an interesting initiative that has the benefit of not putting any financial burden on the consumer.

3) CVS announced in April its plan to launch a bill pay service, to help customers manage monthly health insurance premiums by letting the customers pay cash premiums at the store, at no additional cost to the customers.

These types of payment options are better aligned with the Consumers Union list of criteria for alternative cash payment systems and are also closer to the model that my own company, PayNearMe, advocates. We offer several national retailer access options, a payment network that offers real-time confirmations, and an automated settlement process.

See also: On the Third Hand: Unbanked