Financial partners: As giant health plans build their own banks, smaller ones find institutions that offer flexibility and portability

As health plans work to ramp up their consumer-driven healthcare (CDH) offerings in anticipation of increasing demand, one of their first decisions is how to handle the financial arrangements with banks. Some industry behemoths such as the UnitedHealth Group and the Blue Cross Blue Shield Assn. (BCBSA) have decided to keep the member financial services in-house, creating their own banks. United created Exante bank in 2002, while BCBSA created Blue Healthcare Bank in 2005. Other payers are developing relationships with multiple banks to offset the giants' economies of scale with flexibility and portability, allowing members to keep their money in the same bank even when they change health plans.

Regardless of the approach, however, creating the banking relationships-or even creating the banks themselves-might be an easier task than making the process work properly. Technology will need to enable real-time claims adjudication (RTCA) capabilities among all CDH constituents, and payers' communication strategies will need to evolve as well.

On the bright side, facilitating payment streams and communicating with customers on an individual level are areas in which banks have a better track record than payers, so teamwork will help the pieces come together.

Smaller health plans are working to develop relationships with multiple banks, giving consumers more choices.

"Companies like United and BCBSA have so much size that they can handle the volume and complexity, so certainly it makes sense for them to keep all of the transactions fees in-house," says Regina Herzlinger, Nancy R. McPherson Professor of Business Administration Chair at the Harvard Business School in Boston. "But even with the continuing industry consolidation, there won't be many healthcare payers that will ever achieve the kind of scale needed to make that cost-effective. That's why both models will exist in the future marketplace."

Smaller payers will counter economies of scale by promoting their flexibility and, even more importantly, portability. Their approach is, according to Herzlinger, that "health plans will come and go during the course of people's lives, but the bank that holds their healthcare funds doesn't have to."

Convenience will be a competitive factor as people realize that changing health plans doesn't have to mean opening and closing bank accounts-and there's another advantage for commercial banks, as well.

"Regardless of how many times a person changes the insurance component [a high-deductible health plan], he or she could maintain a single, lasting relationship with the one bank that is actually holding the funds," says Richard Clarke, DHA, FHFMA, president and CEO of the Healthcare Financial Management Assn. (HFMA). "Banks that exist as a part of a network and contract with multiple health plans will have advantages of their own, as well. People change their health plan affiliation all the time-due to changes in employer or marital status, for example-but the bank accounts their funds are in will be portable.

"Further, once they have an established relationship, the banks then will have the opportunity to sell other products and services into their captive customer base," Clarke says.

MARKET TO THE INDIVIDUAL

There are four different constituents that need to be satisfied in a healthcare transaction: the consumer, the doctor or hospital, the payer, and the employer. On the technology side, banks already have become proficient with electronic payment streams and using IT to facilitate financial transactions.

Financial experts, who have a wealth of experience in direct-to-consumer outreach, recognize the challenges that technology must overcome, but say that the ultimate success or failure of CDH offerings will be determined by how consumers get engaged.

Bank of America's growth markets development division started looking at healthcare several years ago as potential users of its credit and debit cards. But it also realized that the business model in healthcare was changing, especially for large payers and the way they interacted with their customers.