Nearly everyone is familiar with swiping a card to pay for groceries, gas and movie tickets. That familiarity, ease and convenience is helping the growth of debit cards for health savings accounts, which patients can use to pay for their pharmaceuticals, copays, medical equipment and hospital expenses.
The debit card "adoption and use continue to grow and grow rapidly," says Jody Dietel, a compliance officer at WageWorks, a San Mateo, Calif.-based firm that administers flexible spending accounts, health savings accounts, health reimbursement arrangements and health care cards. "The technology is increasing and improving rapidly. [The debit cards] continue to be a widely adopted and widely appreciated tool for consumers."
"The cards are an integral part of a consumer-driven health care product. Consumers ought to have cards through which they access their accounts," says Vik Kashyap, CEO of Canopy Financial, which provides electronic payment, account management and investment technology platforms for health savings accounts, flexible spending accounts and health reimbursement arrangements.
"Nearly every health savings account has a debit card associated with the account, as it's the easiest and most cost-effective method for the participant to access their funds for health care," Dietel says.
However, Kashyap points out, most health care transactions involve mailed bills and reimbursements from insurers, rather than an immediate payment with a debit card at the point of service. Prescription drugs are one exception where you see a lot of use of HSA debit cards. "One of the misconceptions ... is that debit cards are the primary vehicle by which funds are accessed. That is not the case," Kashyap asserts. "The debit card is a minor part of how consumers use these accounts."
Dietel apparently disagrees: "Studies show about 50% of accounts have spending activity, with the other 50% accumulating their accounts for future health care needs. When the accounts are used, though, about 90% of the transactions occur through a debit card."
Future outlook
Industry observers seem optimistic about the future of the debit cards, although some players have left the market. For example, American Express decided to stop offering an HSA debit card in 2007.
Regarding the move by American Express, Dietel says, "I don't think it really has any impact in the market. It was a blip ... but it was early enough in the debit card game that it wasn't a major roadblock." She does not expect other financial firms and banks to leave the HSA debit card market.
Banks tend to look at the profitability of the whole HSA product, not the debit card alone, Kashyap explains. "These are extremely profitable accounts" for the banks, he adds.
However, at least one organization has decided to end its venture into HSA banking. Blue Cross and Blue Shield Association recently put its Blue HealthCare Bank up for sale. Headquartered in Sandy, Utah, Blue HealthCare Bank offers health savings accounts.
In general, for HSAs and debit cards, "We see the future to continue to be bright. The technology gets better every day. Things are just going to improve," Dietel predicts. "Debit cards make the use and operation of HSAs easier for everyone."
In a recent survey from Evolution Benefits, two-thirds of the nearly 900 respondents indicated that the availability of the debit card influenced their decision to sign up for the consumer-driven health plan, while almost three-quarters of the respondents said that having a card made using their account easier. Ninety-two percent said they knew where and how to use the card, and which health care items are eligible for pretax treatment based on IRS rules. Additionally, 87% of respondents found it beneficial to have point-of-service substantiation.
Growth for CDHPs
The market for consumer-driven health plans is growing very fast, Kashyap observes. "We expect them to be one of the predominant forms of health insurance and plan design in the future," he says.
But are the accounts adequately funded? According to new research from Canopy Financial, family HSA balances increased, while individual HSA balances continued to decline in the first quarter of this year. "In the first quarter of 2009, consumers again resumed the trend of utilizing tax-advantaged [CDHPs] as vehicles for savings and investment toward long-term medical expenditures and retirement. Not only did employer contributions into individual and family HSAs nearly double quarter-over-quarter, but also employee contributions increased into both individual and family HSAs," says Kashyap.
The average employer contribution to a health reimbursement arrangement was $1,310 for a single employee this year (up from $1,209 in 2008) and $2,502 for a family this year (up from $2,274 in 2008), according to a recent survey from United Benefit Advisers.
