News Release

Overcoming Barriers to Consumer Satisfaction with Consumer Driven Healthcare

February 15, 2006

Full Text of Comments by Tony DiBarnaba, President of Benefit Resource, Inc., Prepared for the 2006 Prepaid Card Expo

The landscape of healthcare benefits is shifting towards consumer driven healthcare (CDH). However, the billions spent on new technologies, political lobbying, marketing, and financial infrastructure may be wasted if the consumer experience isn;t a good one. We operate in a healthcare environment littered with the remains of badly needed – even innovative – health care schemes that could have improved care and reduced costs had the consumer experience been positive. Once again, the healthcare and employee benefits industries are at a critical juncture: the consumer experience will make or break consumer driven healthcare.

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I say “consumer” when really there are three consumers here – the employer, the healthcare provider, and the person we commonly call the consumer– the man or woman in the cubicle, corner office, or stock room to whom healthcare coverage is so vital. All of them have expectations and service demands for CDH and prepaid debit cards.

What is most important to understand is that prepaid debit cards offer great advantages but they do not function independently. For consumer driven healthcare plans to succeed, the cards must integrate into a secure and transparent system that is part of a customer-focused, service-oriented solution that easily integrates into the daily lives of users.

I can share with you what we at Benefit Resource have found to be the key factors that contribute to a positive consumer experience as well as the solutions – developed and as yet undeveloped – that we believe may mean the difference between the success and failure of consumer driven healthcare initiatives.

Benefit Resource Inc.

Why is Benefit Resource a good source of information here? Well, Benefit Resource, founded in 1993, is one of the very few organizations that focuses solely on the administration of pre-tax benefits. Companies outsource their pre-tax benefits administration to us; we work directly with individual employees, helping them make use of Flexible Spending Accounts, FSAs; Healthcare Savings Accounts, HSAs; Healthcare Reimbursement Accounts, HRAs; and Qualified Transportation Expense accounts, QTEs – all of it. We are on the frontlines with employers, employees and healthcare providers every day. And in the back room we're working with partners like MasterCard International, Evolution Benefits, BankFirst, BlueCross® BlueShield®, UnitedHealthcare®, Travelers and many others.

As a result, we have a very good understanding of how consumer driven healthcare plans work for people and what barriers exist to the positive consumer experience we're all seeking.

Consumer driven healthcare

First off, what is consumer driven healthcare? A common model is the Healthcare Reimbursement Account, or HRA, which gives employees a fixed amount of employer funds to use tax-free for pre-approved healthcare expenses. The HRA provides the first level of coverage. Used with higher co-pay healthcare insurance plans, HRAs help to make employees responsible for their healthcare decisions and related expenditures.

A better known form of CDH is the employee-funded Flexible Spending Account, often called a “flex” benefit account.

The promise of consumer driven healthcare is that if users see the true costs of the services they receive and are given control over their personal healthcare dollars, they will make cost-effective choices – choices that will ultimately improve the overall quality of care in America and decrease overall healthcare costs.

We see this promise fulfilled most readily in the area of prescription drugs. Prescription drug coverage can account for as much as 25 percent of healthcare premiums. We know that when consumers receive information on the true costs of prescription drugs, they are more likely to ask their doctors about generic options for their medications, greatly reducing individual costs and promoting cost savings throughout the system. Such subtle changes in consumer behavior can produce great savings over the long term. CDH plans don't provide consumers with incentives to opt for less care; rather, they provide consumers with incentives to choose more cost-effective care.

CDH plans also promise to stem the rising costs to employers of providing employee benefits. And they do. If properly administered, CDH plans can provide employers with sufficient tax savings and premium reductions to offset, or cover, the cost of plan administration.

Advantages of prepaid debit cards

Prepaid debit cards are the transaction card of choice for CDH plans primarily because, from the user's perspective, they're convenient and secure. The list of advantages they provide is long:

The cards give employees direct access to pre-tax accounts at the point of service. Whether paying for a prescription at the pharmacy or a co-pay at the doctor's office, users can avoid handling cash while saving up to 40 percent on out-of-pocket costs by spending pre-tax dollars. The cards automatically debit the appropriate amount from individual pre-tax accounts, making them the ideal companion cards to standard insurance cards.

Many cards, like our Beniversal™ MasterCard® card, provide users with direct access to multiple pre-tax healthcare accounts through one card. This is an important convenience. Users and providers are relieved of the burden of identifying which user account should be debited and how. The “card” does it for them.

Direct access to accounts means that users can take full advantage of pre-tax savings.

Users and providers are assured that funds are available.

Involvement of major network providers like MasterCard, Visa and others ensure broad acceptance of cards by healthcare providers.

At the same time, the work of companies like Benefit Resource ensures the timely transfer of funds.

Major network providers like MasterCard also provide security and peace of mind to users. Cardholders are protected if their card becomes lost or stolen.

The cards serve as the entry point for streamlined administration. Administrative reports for employers and IRS compliance reports are generated through the simple exchange of electronic files ...

... while preserving the privacy of individual account information.

The cards are linked to online client services. Users can access a secure feature at our web site, for example, to track and manage their individual pre-tax accounts. Users see what goes in and what goes out. They get a true picture of expenditures and develop a history that they can refer to when forecasting future spending needs. Such detailed reporting capability, coupled with online and human support resources, are essential to long-term consumer satisfaction with CDH plans.

Prepaid debit cards also open the door to paperless transactions. This is one area where the entire benefits administration industry is working overtime to meet consumer expectations.

The goal of paperless transactions

Certainly one of the expectations that employers, consumers and healthcare providers bring to the discussion of prepaid debit cards and consumer driven healthcare is that the cards will link to a paperless system. Such expectations place heavy service demands on the prepaid debit card at the point-of-service. During transactions, the card must:

Identify the user

Identify the eligible provider

Identify the user's accounts

Identify the correct account to be debited

Verify that there are sufficient funds in the account to cover the cost of service

Initiate the reporting process

All of which the industry has accomplished.

However, to provide a truly paperless transaction, the card must also:

Determine if the service provided is a qualified expense ... ensuring that consumers cannot use their tax-free healthcare accounts for inappropriate purchases, like dinners or vacations.

And here, in the area of automatic adjudication of expenses, or what is sometimes called auto-substantiation, the industry is advancing but has not yet met consumer expectations.

To help you understand how this works in another context, you can look at another form of pre-tax account – the QTE or Qualified Transportation Expense account. It works much like a “flex” account for mass transit and parking expenses. Workers reduce these expenses by using pre-tax dollars in their QTE accounts. Benefit Resource was one of the first companies to apply paperless technologies to this sector, providing “automatic adjudication” at the point of purchase. We created a filtering system that ensured that our prepaid debit card, the eTRAC® MasterCard, could be used only for qualified purchases – to buy subway or bus passes or to pay for qualified parking expenses.

The eTRAC filtering system is vendor-based; the card will approve purchases made through ticket vending machines and transit offices, for example, but it will not approve purchases made at candy counters that also sell transit passes. The solution places some restrictions on where commuters can use the card but it greatly enhances the convenience and viability of the card for those same commuters... and for their employers who must comply with IRS regulations on account usage. In the end, for users, automatic adjudication of expenditures at the point of sale means they can avoid the headache of submitting receipts and paper verification of their transactions.

Of course, we can't ignore the benefits to providers here: Transit authorities are assured of the timely inflow of cash and a reduction in administrative costs associated with collecting that cash. Meanwhile, the government is providing tax incentives that boost ridership and increase transit revenues.

Special challenges in healthcare

However, the healthcare environment is far more complex. A vendor- or provider-based filtering system won't work here because providers, including pharmacies and medical centers, deliver a range of services and products, some of which are qualified expenditures under IRS regulations, some of which are not. Moreover, privacy laws place restrictions on the sharing of patient care information.

To meet the challenge of providing the convenience and efficiency of paperless transactions, including automatic adjudication at point of sale, providers must participate. Most notable is Walgreens' recent involvement in the creation of a point-of-sale transaction coding system, based on SKUs, that protects the privacy of consumers while providing product qualification information that is essential to paperless tracking and reporting of pre-tax benefits.

A transaction coding system is preferable to a vendor-based filtering system. It provides greater convenience and more options to consumers and healthcare providers. The newly-developed solution used by Walgreens marks a huge step towards providing greater convenience to consumers.

Providers have incentives to adjust their internal technologies to operate in concert with prepaid debit card technologies. For example, timely payments create more predictable cash flow and tax incentives increase demand for high quality services.

The essential component – consumer education

I can't emphasize enough the role that consumer education plays in providing a quality experience for both employers and employees who participate in CDH plans. Knowledgeable consumers embrace consumer driven healthcare plans. Poorly informed consumers are far more likely to feel confusion and frustration and to suffer the effects of poorly planned healthcare coverage.

Many new players in the healthcare insurance industry, those looking to gain market share, are using innovative educational materials and support services to differentiate their CDH plans in the marketplace. These companies offer services like online access to case management resources that significantly improve consumer satisfaction with CDH.

A commitment to quality education programs and support services is a particularly important for employers. Most companies that are looking to introduce consumer driven healthcare plans recognize that the administrative and compliance burdens associated with CDH plans, as well as privacy laws governing what information employers may gather about their employees, make it advantageous to outsource administration of CDH plans. However, companies are often ill-equipped to evaluate the quality of employee services delivered by third-party administrators and may be attracted by low-cost contracts. Common areas for cost cutting among low-cost administrators often include educational programs and individual employee support services.

At minimum, lack of pre-launch educational services and on-going employee support reduce employee participation rates for employers, reducing employer savings and depriving employees of a meaningful benefit.

In the worst cases, it results in boondoggles that cause employers, their and employees and healthcare providers to reject consumer driven healthcare plans.

We believe our education and support programs are part of the reason Benefit Resource has been so successful. We believe a basic education and support platform should include:

Custom plan design for each company. (Every company presents unique benefits administration challenges requiring structural adjustments from the beginning, not patches and fixes made a year into administration.)

A dedicated programs specialist to work with each HR director. Directors should work with one person who knows their company.

24-7 operations support

Individual problem solving for employees – eliminating a great service burden on HR directors

Extensive educational materials for employers, their employees and for healthcare providers

Extensive on-line resources such as easy-to-use worksheets and calculators that help users better forecast spending needs

People. Specialists in pre-tax benefits who work with individuals over the phone to provide the type of human support necessary to a quality consumer experience.

As the industry makes technological strides, I can't emphasize enough, the value added to the consumer experience by on-going education and support. It can mean the difference between the successful operation of consumer driven healthcare plans and their failure to meet consumer expectations.

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About Tony DiBarnaba, President of Benefit Resource, Inc.

Tony DiBarnaba founded Benefit Resource in 1993 with now-Vice President Tom Guiler. His entrepreneurial passion for innovation has driven Benefit Resource to a number of industry-leading products. Prior to starting Benefit Resource, DiBarnaba and Guiler co-owned Electronic Accounting Systems, a small payroll company that also offered flexible benefit plans. They sold the company in 1991 to Automatic Data Processing, Inc., a major national payroll processing firm.

Earlier, DiBarnaba spent 10 years as General Manager for Control Data Corporation, with overall responsibility for client payroll sales and operations for the firm's office in Rochester, NY. DiBarnaba received his bachelor's degree in accounting from Boston College.

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Benefit Resource, Inc. (www.BenefitResource.com) administers pre-tax employee benefit plans for more than 100,000 employees and 1,000 employers in Upstate New York, New York City, Boston, Chicago, Philadelphia and Washington, D.C. Unlike payroll or human resource companies, Benefit Resource focuses solely on administration of tax-free benefits. When there’s a question about pre-tax benefits – for health care, dependent care or transportation, Benefit Resource is the expert.