Want fries with that MRI? Health care's looming retail environment

In an age of spiraling health care costs, including out-of-control hospital expenses and insurance premiums, a recent Celent LLC webinar predicted the health care sector will, by necessity, become more like a retail environment.

As Red Gillen, Senior Analyst for Celent's Banking Group, explained, "There have been double digit increases in health care costs, and premiums have been skyrocketing, which has really led to the creation of the consumer directed health care movement [CDH] as a way to reduce costs.

"If consumers or patients assume a greater share of their medical care through the use of deductibles, those consumers will be more prudent in only accessing health care that is medically necessary."

Gillen noted this means out-of-pocket expenses are rising, and there's a greater shift away from insurance companies – that is to say "the payers making payments to doctors and other providers − with the shift obviously moving into the laps of consumers."

As a consequence, consumers will pay for medical care at the POS, such as the doctor's office or hospital, with a variety of prepaid cards much like they pay for DVD players at electronics stores or burgers at quick service restaurants today.

A number of barriers must be hurdled, however, before this future will be realized. These include:

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• Implementation of card standardization, so the data stored on the card's magnetic stripe is organized and accessible at all transaction locations

• Development of an infrastructure, such as systems to connect medical service providers and insurance companies, to facilitate these types of complex payments

Where's the menu?

But the biggest roadblock, according to Gillen, is the lack of transparency in terms of patients' (consumers') financial responsibility at the point of service.

"When you go to the doctor or you go to the hospital, it is extremely unlikely that you know how much that service is going to cost you, unlike a retail environment," he said. "It's very difficult for people to pay if they don't know how much they owe."

Despite the challenges facing the implementation of the CDH model, Gillen quoted statistics that highlight the huge potential for prepaid health care cards. In 2007, consumers will pay $250 billion in out-of-pocket health care costs. $242 billion of that total is paid with traditional forms of payment, such as cash, check, and credit and debit cards. The remainder – $8 billion – is tendered with prepaid cards such as flexible spending account, health savings account (HSA), and health reimbursement arrangement cards.

If 10% of that $242 billion in traditional payments is shifted over to prepaid cards with an estimated interchange rate of 1.5% per transaction, Gillen estimated it would conservatively mean "$363 million of revenue alone for industry players," not accounting for other costs such as processing fees.

Of the payment cards mentioned in the webinar, Gillen foresees HSA cards as having the greatest potential for growth over the next five years.

The reason behind the optimism is that HSA cards are "tied to a high deductible health plan that is relatively low cost for employers," Gillen said. "Therefore, they are able to offer [HSA cards] to a wide spectrum of their employee base."

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