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Obamacare Gap Leaves Unbanked in the Lurch

With just four months to go for uninsured Americans to sign up for health insurance under the Affordable Care Act, doubts remain about whether the millions of consumers who do not have bank accounts will be able to use credit, debit or prepaid cards to pay for health care premiums.

The law allows insurance companies to determine what forms of payment they will accept from the uninsured. Some insurers have already said they will not accept credit, debit or prepaid cards for recurring payments. Their resistance is driven by the fact that Obamacare, as the law is known, requires insurers to keep premiums and administrative costs low; accepting payments via plastic requires them to pay interchange fees that generally range between 1% and 3%.

A refusal to accept such payments could create a serious problem for as many as 8.5 million Americans who will qualify for health insurance subsidies but do not have checking accounts, according to a report last month by Jackson Hewitt.

"It's an urgent issue but the insurers are in a pickle," says Brian Haile, a senior vice president for health policy at Jackson Hewitt. "Insurers are making entirely rational decisions by trimming out any other costs. But if they eliminate the ability to take debit cards, they may exclude as many as one in four [eligible] Americans from getting health insurance."

The Department of Health and Human Services weighed in on Friday, proposing a rule that would require health insurers to accept alternative forms of payment, including reloadable prepaid debit cards. That proposal is expected to meet resistance from health insurers, which, under the law, must apply 80% of premiums toward health care and not administrative expenses.

HHS has received numerous questions on the payment issue and is seeking comment on the proposal to require insurers to accept alternative forms of payment and whether other payment methods should be available. Comments are due in late July. It's unclear whether any legal changes will be made before the Oct. 1 deadline.

The fear among consumer advocates is that insurers will not accept credit, debit or prepaid cards because they do not want to pay the interchange fees. UnitedHealthcare, a unit of UnitedHealth Group (UNH), has said it will only accept credit and prepaid debit cards with the Visa (NYSE:V) or MasterCard (MA) logos for the first premium payments. After that, consumers will need to use a checking account or an electronic funds transfer to pay for premiums.

Aetna (AET), told American Banker that it will accept card payments. Several other top insurers, including Wellpoint (WLP) and Humana Inc. (HUM) did not respond to requests for comment.

"We realize that a segment of the population that will seek health insurance coverage through an exchange will not have bank accounts or credit cards," the agency's proposal states in one paragraph of a 253-page health care rule. Insurers should "at a minimum accept a variety of payment formats including but not limited to paper checks, cashier's checks, money orders and replenishable prepaid debit cards. Issuers may also offer electronic funds transfer from a bank account and automatic deduction from a credit or debit card as payment options."

State insurance regulators in nearly every state have been racing to set up health insurance exchanges that beginning Oct. 1 will cater to uninsured adults between the ages of 18 and 65.

Credit card issuers say insurers should accept prepaid cards because it is the preferred method of payment for a large swath of consumers.

"Prepaid cards provide tremendous value to insurance issuers seeking a more efficient way to take payments from and make payments to policy holders. And, with the growth of low cost and no fee cards, health care recipients are embracing prepaid products as a less expensive and more convenient payment alternative," Brett Adams, Business Lead of U.S. Prepaid Products for MasterCard, said in an email to American Banker Friday.

Dan Schuyler, a director at Leavitt Partners, a Salt Lake City health care consulting firm, says negotiations are ongoing between insurers, state exchanges and some card issuers to determine fees and costs.

"You're talking about tens of millions of people doing monthly transactions and that's an opportunity that the credit card companies see, but the insurers have specific administration costs they have to pay for," he says. "The transaction fees are pretty expensive and for a $900 a month premium, those fees will add up quickly and cut into the revenue."

Federal law requires that individuals and families that receive tax credits to buy health insurance through state exchanges must pay their share of premiums to the insurer every month or be penalized for not having insurance. The issue of how these unbanked, uninsured consumers would make their payments has been largely ignored in the rush to implement the sweeping new law.

"Part of this reflects the growing pains of a new organization that has expertise in health care but not in payments," says Haile, referring to the Center for Consumer Information and Insurance Oversight, the government agency that is helping implement many provisions of the 2010 health reform law.


(6) Comments



Comments (6)
I agree with the posts her. Banks should always think of some strategies that could reach unbanked persons to banked. As the FDIC would like to get more of the unbanked to join the banked. To that end, the bureau rolled out a preliminary program last year, where many banks provided an entry-level account that attracted those cautious about banks. The preliminary program, called Safe Accounts, worked pretty well. Get a cash advance to help pay for your overdraft fees.
Posted by Charllote | Saturday, July 13 2013 at 4:59AM ET
It's ironic that the government would consider a mandate to private companies to take cards and absorb the fees, in the public interest, when the government doesn't do that themselves. When paying taxes using a card, the IRS contracts with Official Payments, Link2Gov, etc., and those companies charge a percentage-based fee for taking tax payments via card.
Posted by dave_fortney | Monday, June 17 2013 at 3:01PM ET
Well, if the government can force people to buy insurance, then it must be able to force them to opening a bank checking account -- Big Brother is getting bigger and more controlling!
Posted by katkue | Monday, June 17 2013 at 10:36AM ET
It appears that congress will not stop until banks become NSA-IRS-like. Snoop, report, require, oh, but don't charge for it... Isn't ALLY Bank (the taxpayers' bank) still broke?
Posted by curtis lowe | Monday, June 17 2013 at 9:27AM ET
Remember "We have to pass it so that we know what is in it", I am sure that those leaders that passed it are full of solutions for such an easy issue. However, I recommend that that industry fix it fast before those "leaders" are given a chance. No wonder so few people trust government anymore.
Posted by frankarauscher | Monday, June 17 2013 at 9:01AM ET
Great article. Big banks and regionals need to develop an approach to the nonbanked that satisfies their needs and can make money for them. At some point the government will insist on this involvement.
Posted by cwendel | Sunday, June 16 2013 at 11:23AM ET
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