The health insurance industry is a major sector in the United States, where most employers are required to provide coverage to full-time employees.
Businesses may fulfill this obligation by paying monthly premiums to insurance carriers in exchange for staff coverage, but some believe this approach can lead to employers spending more on coverage than their employees end up using.
A growing number of businesses are therefore choosing to avoid so-called “fully insured” plans, instead electing self-funded health plans to save money. This option has businesses bypass insurance companies and use their own budgets to pay out employees’ healthcare claims in the hopes that the expenses will be less than the premium costs they would otherwise pay.
Nearly 60 percent of the U.S. workforce was enrolled in partially or completely self-funded plans by 2019, and companies with self-funded insurance often contract with third-party administrators to help manage these programs. The third parties help review submitted claims and then use employer-established funds to pay physicians.
The shift toward self-funded insurance also changes the payment flows involved. Traditional insurance plans see companies making recurring, fixed payments to insurance providers while self-funded alternatives require firms to make claims payouts on the fly in amounts that vary based on the particular needs covered.
The third parties that help mediate between employers and physicians therefore need to respond quickly and deliver payments to healthcare providers that are easy to accept and reconcile, Brett Rodewald, president and CEO of healthcare claims processor Lucent Health, explained in a PYMNTS interview.
Benefits Of Virtual Cards
Healthcare claims processors must manage transactions with a vast — and often changing — array of physicians. Most companies in other industries have simpler accounts payable (AP) responsibilities because they only need to make B2B payments to several dozen regular vendors, but claims processors do not have that same certainty and stability. Patients may visit any of the thousands of providers included in their care plans’ networks, meaning claim processors need to be ready to promptly issue funds to any of these parties.
“In a true accounts payable format for corporate spend, you know you have 30 to 50 to maybe 100 accounts payable vendors, and you pay the same ones every month,” Rodewald said. “In the health payables world, about 90 percent of our payments go to 500 providers and another 10 percent go out to another 950,000 providers. It’s a lot of moving pieces … that change every month.”
Not all payment methods are well-suited for such irregularly occurring disbursements, and virtual cards stand out from the alternatives. The flexibility and one-time nature of virtual cards make them particularly compelling for facilitating such payments, Rodewald said. Claims processors do not need to go through onboarding processes to pay each new provider and can instead generate a fresh card code to quickly authorize a transaction. Digital cards also offer a convenient and low-cost way of issuing funds compared to sending paper checks in the mail, Rodewald noted.
Virtual cards are not only compelling to claims processors, but also to healthcare providers that need to be paid. Providers often prefer receiving funds this way because plenty of data can be sent alongside the funds, leading to easier reconciliation, Rodewald said.
“We can attach the explanation of payment with the virtual card itself and submit it to the provider, so they have all the information electronically at their fingertips,” he explained.
The healthcare industry is sizable and depends on smoothly flowing payments and information. This can be especially challenging in the self-funded health plan space, in which claims processors never know to whom and how much they will be paying each month. Quick digital transaction tools, such as virtual cards, can play a powerful role in helping claims processors quickly respond and issue funds that are easy for physicians to accept and for processors to deliver.