A Closed-Loop Challenge to the Open Card System

  The simplicity of a ready-made infrastructure is why cards that access health savings accounts today rely on the Visa and MasterCard acceptance networks. But proprietary HSA networks may be in the offing.
  Several managed care providers, including United Health Care, WellPoint and Cigna, are pushing hard into HSAs. With an estimated 100 million consumers insured through these carriers, they could form or support a proprietary HSA network that can offer more services to health care providers and consumers than can the public Visa and MasterCard networks.
  "Health care is still a very paper-intensive industry, and there may or may not be prenegotiated fees with providers," says Jack Gebhardt, a senior vice president for Brookfield, Wis.-based Fiserv Inc. "In either case, the actual cost of service needs to be determined at some point. If doing so at the time of the visit through a closed-loop system can reduce internal costs for the parties in involved, then we'd consider developing it."
  Transaction processors such as Fiserv and Fifth Third Bank Processing Solutions are among the likely candidates to build a closed-loop HSA network because they have the internal processing infrastructure and business relationships to offer a soup-to-nuts product.
  Proponents of closed-loop networks argue that while the Visa and MasterCard networks offer broad access and the opportunity to develop industrywide standards, they were built for communications involving card issuers and merchant acquirers, not health care providers. Nor were they designed to transmit medical-claims data, which involves more than account information and authorization codes.
  "It would take a proprietary network to facilitate payments and claims adjudication," says Steve Hooper, director of HSA product management at Pittsburgh-based Mellon Bank. "There would be a value to such a network, but I see it more for common procedures, such as emergency-room visits, a heart scan that can be done on an outpatient basis, check ups or pharmacy purchases."
  Building such a network would require a huge combined investment from insurers, health care providers and even HSA card issuers. Figuring out how those costs would be shared likely would take several years.
  "There is always a cost involved with building a network, and it is unclear what value a closed-loop network would provide, let alone who will pay for it," says Scott Reaser, a senior consultant at Linthicum, Md.-based First Annapolis Consulting. "I don't see it happening in the near term."
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