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Health savings accounts – and the cards
used to access them – are growing at a brisk clip in the US, but
the best is yet to come, with impressive growth potential that
could be unlocked through multi-purpose cards, according to a new
report. Charles Davis reports.

Boston-based financial services consultancy Celent’s new study, The
Healthcare Payment Card Ecosystem Version 2.0, found that while
Americans have established only about 2.5 million health savings
accounts (HSAs) since their legislative creation five years ago, 95
percent have a payment card linked to the account. HSAs and cards
are inseparable, it seems, and that’s a good thing, as Celent finds
the accounts are on the cusp of explosive growth.

The report found that spending on health care cards totalled about
$2.5 billion last year, with much of the spending on a closely
related product, the flexible spending account, which is far more
prevalent in the US (there are about 19 million ‘flex spend’
accounts nationwide), though only about 30 percent of those
accounts have cards attached to them. The potential for growth in
that segment is also impressive, as spending on flex-spend cards is
double that of HSAs. Celent estimates that 16 million flex-spend
account cards will be in circulation in 2012.

Multi-purpose cards evolve

The stakes are immense: health reimbursement payment cards make up
$255 million in payments, and consumer health care payments not
paid with cards add up to $242 billion. The key, according to the
report, is the emergence of multi-purpose cards that allow
consumers to gain access to more than one kind of health care
spending account on a single card platform, with a revolving credit
account tied to the product.

Celent predicts that multi-purpose cards will grow from 15 percent
of all card-enabled accounts in 2007 to about 54 percent by
2012.

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The report finds that the Version 1.0 cards developed to serve
flexible spending accounts, HSAs and health reimbursement accounts
have created considerable value by replacing paper-based processes
and allowing consumers to avoid the ‘double payment’ scenario
previously associated with medical spending accounts.

Those products are beginning to evolve, as more consumer-driven
health plans are adopted, shifting many out-of-pocket expenses for
medical care to the consumer’s wallet at the point of service. As
these consumer-driven health plans grow, Celent found that consumer
and health care providers alike are more and more required to
understand their patients’ eligibility and financial
responsibilities. Card-based solutions are becoming the linchpin of
the system, the report said, and as such stand to play an even more
important role in not only payments, but eligibility and claims
settlement.

To date, the health care payment cards ecosystem has put priority
on convenience, but Celent predicts the market is about to witness
the switching out of this first generation.

“The next-generation, Version 2.0 card ecosystem will bring
increasingly sophisticated functionality, higher levels of
automation, and most importantly, greater integration of health
care information,” the report said.

Emerging trends

The report identifies four health care payments card trends that
bear watching.

First, there is what Celent describes as “the second coming of
flexible spending accounts”. New guidelines put in place by the
Internal Revenue Service for the auto-substantiation of flex-spend
and other health care payment cards will make card use an extremely
attractive payment option in the mixed-use and pharmacy retail
spaces. By opening 19 percent of the health care card market to
auto-substantiation, these guidelines will also boost the
popularity of flex-spend accounts, the report said. Of all four
trends, this one will happen most quickly and directly result in
increased card spending volume.

Second, the report details what Celent describes as the rise of
“smarter” multi-purpose cards. Although multi-purpose cards have
been around for years, the next generation will build on existing
functionality to take substantiation down to the individual
treatment level.

Third, Celent expects greater standardisation of multi-function
cards to streamline offerings and add momentum to their
growth.

“The vision of multi-function cards to increase health care
transaction speed, accuracy, transparency and convenience has been
dogged by the use of proprietary formats that require providers to
use discrete systems and hardware – as a result, adoption has been
minimal,” the report said. “However, the government will soon
indirectly start pushing the market to create, adopt and implement
standards that will enable multi-function cards to reach critical
mass.”

Finally, Celent sees the coupling of cards and real-time
adjudication – the long-awaited breakthrough that the health care
sector has been waiting for.

“Real-time adjudication is the nirvana of the health care revenue
cycle management space, but it is still years away,” the report
said. “Right-time adjudication may be a more realistic approach to
enable providers to gain patient commitment at the point of
service; from an operational perspective, payment cards will play
an integral role.”

The future

These four trends promise to transform the health care payment card
ecosystem, Celent said. Financial institutions will need to expand
their product portfolios and customer relationships. Card
processors will be required to process new data streams, whether
for card production or transaction processing. Programme
administrators will be able to leverage cost reductions. Health
care revenue cycle management vendors will need to team with card
acquirers to integrate payment and health care information. Payers
will need to interface with multiple eligibility and claims
adjudication solutions.

Currently, very few multi-function cards exist in the marketplace,
the report said. However, this situation will begin to change in
2008, when Exante begins issuing a high percentage of health care
payment cards in a multi-function configuration. By 2009, standards
for multi-function cards are expected to be agreed upon, which will
serve as a catalyst for some immediate issuance. However, it will
be during the first year after standards have been established, the
2010 plan year, that real growth will occur.