Discovering cards: health insurers see magnetic-stripe and smart cards as the answer to high administrative costs and consumer satisfaction.

Paying a provider copay or verifying member eligibility is now as easy as the swipe of a card. Card solutions, which health plans tout as increasing efficiencies, speeding payment and reimbursement, and providing a competitive edge, are gaining momentum across the industry. Some industry experts anticipate 2005 will be a hallmark year for putting card technology into more health-plan members' hands. And while health insurers' use of magstripe cards--plastic cards that have a piece of magnetic tape fused to them--has grown in the past couple of years, the latest twist is smart cards, which hold a wealth of information in a single microchip.

Off and Running

Many health insurers now are relying on magstripe card solutions. These cards are helping trim costs and inefficiencies in flexible spending accounts and health reimbursement accounts, said Beverly Kennedy, senior vice president, health care, of First Data, which recently introduced its Multipurpose Healthcare Card, designed to support FSA and HRA record keeping and claims administration. Health reimbursement accounts allow consumers to set aside pretax dollars to use for health expenses. Flexible spending accounts allow employees to place payroll-deducted pretax dollars in a special account to pay for insurance premiums, child care and unreimbursed medical expenses. Paying an FSA claim without the card costs approximately $5 to $10 per transaction, Kennedy said, and card technology is helping to reduce those costs.

In January, Horizon Blue Cross Blue Shield of New Jersey rolled out debitcard technology to its entire book of business for administration of FSAs for unreimbursed medical expenses and Transportation Management Accounts, which allow consumers to direct employers to deduct a portion of pretax wages for work-related parking and mass-transit commuting expenses.

Two of the largest stumbling blocks to FSA participation are that users have to "use it of lose it" and the "double spending" practice--paying a provider and then having to wait for reimbursement, said Susan Duffy, manager, flexible spending, for Horizon of New Jersey. "Cards take a lot of the paperwork away from members and provide immediate access and payment to providers."

Many plans are confident that card technology will boost enrollment in FSA plans. Humana's HumanaAccess card, which is powered by Evolution Benefits' Benny Card--a MasterCard that electronically accesses pretax contributions set aside in accounts such as FSAs and Transportation Management Accounts--is proving that point. In 2001, only 11% of the Louisville, Ky.-based company's associates participated in FSAs, but after the card was introduced in July 2002, participation rose by 65%. Plan participants are also increasing the amount of money being placed in FSAs. "People are now comfortable putting more away because they can use the card to access their funds and not worry about losing their money," said Beth Bierbower, vice president, product innovation.

The recent IRS ruling (Revenue Ruling 2003-43) that clarified electronic payment rules for medical expenses also has spurred more health-plan interest in cards. The ruling defines whether employers, third-party administrators or participants can be held liable if medical debit cards are misused. According to the ruling, if the participant uses the card for an expense that isn't qualified for FSA reimbursement, the payment will be denied at the time that the card is swiped, or the participant will be required later to reimburse the plan. Thus the participant is liable if he or she misuses the card. The ruling also removes the need to submit receipts so that expenses can later be reimbursed through FSAs or HRAs.

Some insurers believe card technology may have a place in health savings accounts. HSAs are a new tax-free benefit program included as part of the recent Medicare reform act. "According to the current legislation, the unique thing about HSAs is that there is no substantiation requirement for them and that would make use of the card much more convenient," said Brad Utoft, vice president, product manager, group health products, for Mutual of Omaha. The company is currently offering debit cards as an option with its HRA and FSA products, and is now evaluating HSAs and the associated use of debit cards.

Card solutions also are anticipated to have a hand in easing the administration of consumer-directed health plans. For instance, cards will simplify the complex account management process and ease online accessibility. "The hallmark of these products [consumer-directed health plans] is more skin in the game for consumers, and consumers must be given more information about choices they have to make," said Dr. K. James Ehlen, chief executive officer of Halleland Health Consulting in Minneapolis. "Cards will help that."

Which Type of Card?

As more health plans adopt card technology in 2005, some will enjoy the benefits of magstripe cards, but others are taking a look at the value smart-card technology may bring to the table.

"We're on the cusp of smart-card technology today," Ehlen said.

Smart cards, plastic cards embedded with a microchip, memory and an operating system, differ from magstripe cards in that they can hold a significant amount of data, allow integration with numerous databases and can be programmed and re-used. The technology isn't new, however. Smart cards began nearly 20 years ago in France when they were used for pay telephone systems. While magstripe cards have been around for several years, they've been a reasonably effective payment mechanism for medical services, Ehlen said. "But what a smart card can do that a magstripe can't is provide real-time information useful to the patient, clinic and health plan all at once."

Smart-card solutions can perform a variety of functions, including real-time patient eligibility checks, pre-authorizations and referrals, and deductible transactions at provider offices and pharmacies at the point of care. Using them is taking a bite out of the estimated $250 million spent annually on health-care administrative costs. Every time a physician's office calls a health plan to inquire if a patient is covered and what the copays are, it costs approximately $3.50 to $4.50, said Mallory Kates, vice president of marketing for Minneapolis-based Cardtronic Technology, a provider of health-care specific smart cards. "By providing eligibility checks at the point of service with a smart card, much of that administrative overhead can be significantly reduced."

Smart-card technology is used in Europe to streamline the process of conducting routine medical transactions. By the end of the decade, six European Union countries that currently use health insurance cards plan to issue 167 million smart cards to help residents claim state health care in other countries, according to a recent article in the Health Service Journal. For example, France is developing the Netc@rd program, which will require both patients and physicians to have a smart card to access a patient's online records. Germany, Italy's Lombardy region, Finland, Austria and Greece also are participating in the program. In addition, the European Parliament announced late last year that it's set to begin debate on a proposal for a universal health-insurance card that citizens in EU member countries would use to replace a variety of local cards now needed to obtain health care. The goal of the proposed card system is a universal electronic health-insurance card for all EU citizens by 2008, according to the European Parliament.

"I think the low-hanging fruit in card applications today is because we were historically focused incorrectly on clinical applications for smart cards," said Ehlen. These cards can provide much more than that, however: storing a patient's full medical history, lab results, pharmaceutical information, physician and emergency contact information; and making secure payment for health services. "Not to mention they're helping to preclude some of the wasteful activities of the patient experience today, such as filling out forms every time they enter a provider's office," Ehlen said.

Everyone Wins

Card technology is a win-win for everyone, said Humana's Bierbower.

Magstripe cards have been shown to eliminate most of the paperwork normally associated with an FSA because the debit card allows consumers to pay for eligible health-care expenses at the point of service, said Butch Ward, a spokesperson for Horsham, Pa.-based AmeriHealth Administrators. "Use of the card generally results in a quicker payment to providers, especially when used to pay for services that wouldn't normally be covered in the employer's medical plan, such as LASIK surgery," Ward said.

For providers, who in the past have been somewhat leery of adopting new technologies, card technology is also helping cut administrative costs. "The light bulb that goes on for providers isn't a clinical one but an administrative one," said Ehlen.

Employers are enjoying card solutions because they are driving increased participation in underused employee benefit accounts, in addition to providing employees with more pretax dollars to handle increases in cost sharing. Employers save on Federal Insurance Contributions Act tax for every dollar an employee contributes to an account, said Donna Porrit, senior vice president of marketing and sales for Evolution Benefits.

Additionally, employers can limit the eligible merchants and service providers to specified "merchant codes" relating to health care, Ward said.

Health plans find much value in the cards as they help realize administrative efficiencies, speed reimbursements and increase plan participation. They also serve as a competitive tool.

Card use is on the rise. The amount of transactions made with the HumanaAccess card has grown from $1 million during the first year to $3.2 million last year. This year, $700,000 in transactions was made in January alone, and Bierbower anticipates that total could reach $8 million to $9 million by year end.

Aetna believes its soon-to-be-introduced multipurpose card will help the company build better relationships with its members because it will be easier to conduct business with Aetna. It will also improve interaction between patients and doctors by allowing immediate payments and paperless claims. In addition, the new card eliminates the static instrument of the traditional health ID card and instead puts a multipurpose tool into the hands of its members to access information and care, said Mark Bertolini, senior vice president, specialty products. The multipurpose card will initially be used for health and fund accounting and eventually for credit for medical and nonmedical items. Aetna is piloting its card this year to several large clients and hopes to replace its member ID cards with the new card in 2005.

Eligibility Requirements

One of the uncertainties of card use has been ensuring that only eligible purchases and service transactions are made with the card. Technology is eliminating that concern.

Aligned with the recent IRS ruling that defined electronic payment rules for medical expenses, many card vendors have developed proprietary technologies to ensure the cards are used to make only bona fide payments. Evolution Benefits, for example, does the verification prior to placing the amount on the card at the point of service. At the pharmacy, for example, the member presents the prescription and the pharmacist enters it into a prescription system--there is no change required in either pharmacist or member behaviors, said Porrit. The technology captures the adjudicated and substantiated amount. When a card is swiped, the normal MasterCard/Visa process to pay for the patient-due balance takes place. The Evolution technology links the information to the adjudicated amount and then "looks for" an exact match. If the card is swiped for a different amount, the transaction is rejected. This technology satisfies the substantiation requirement of the IRS ruling and is 100% paperless. In addition, the same information can be used retrospectively to match transactions after authorization, if an employer or health plan so desires, Porrit added.

This technology appealed to BlueCross BlueShield of Tennessee when it selected Evolution Benefits as the vendor for the development of its debit card. If there's any question about a transaction or claim, the company reviews the claim through the system and has the right to ask for documentation for the claim if necessary, said Cheryl Willoughby, manager of GISI Administration for the Blues plan.

A Sign of the Times 

As card technology evolves, more insurers are expected to choose smart cards. In the past, two factors kept smart cards from becoming a real option for the health-care community: hardware expense and the limits of early card technology, said Cardtronic Technology's Kates. Today's cards are much less expensive, have far greater storage and can do many more things. The industry also has benefited by the standardization that began just a few years ago which permits cards to be read by readers regardless of the manufacturer--much the way VHS cassettes can be read on any player. Also, the cost of technology associated with smart cards has plummeted dramatically. Devices that once cost about $300 a piece now can be purchased for under $10 in large batches, said Ehlen.

In addition, some experts believe smart cards will be a helpful tool to increase patient safety. For example, information stored on the cards can signal a pharmacist of potential drug interactions or ensure that patients receive necessary immunizations.

Smart-card technology "will initially be used as a benefit to the health-care organizations who are trying to streamline their operations, reduce fraud and reduce costs of processing health-care service payments, and it will become expanded to consumers where the health-plan providers can add services that will make them competitively different from their other local health-care providers," said Randy Vanderhoof, executive director of the Smart Card Alliance, a not-for-profit, multi-industry association working to accelerate the widespread acceptance of multiple application smart-card technology.

"We believe that in five years no one will be carrying a paper card; all health-plan cards will be chip-based smart cards," said Cardtronic Technology's Kates. "Many people in this field are beginning to see that health care is exactly the right application for smart cards. There are just so many benefits for all stakeholders that everyone wins in this equation."

How the Cards Work

Magnetic Cards

Magnetic cards are plastic cards with magstripes on the back. The stripe contains iron-based magnetic particles with binary code in 1s and 0s that are magnetized in various directions. The card's information is released by swiping the card through a reader. A health insurance debit card can deduct payments for a doctor's visit.

Smart Cards

Smart cards are the size of a credit card and contain an embedded microprocessor chip that stores digital information. The chip is able to store large amounts of data and add, delete and interact with remote databases and desktop computers. It can have anywhere from 16 to 128 kilobytes of memory. The information is obtained by inserting the card into a reader that is connected to a PC. A health insurance smart card can contain information such as copayment amounts, medication history and the results of a recent EKG.