The stagnant state of health care payments

The health care payments market is big – accounting for over one in six dollars of the U.S. GDP – yet it remains perpetually outdated with its heavy reliance on using paper statements for sending out bills.

In an age where consumers can use mobile phones for metro transit rides, order ahead coffee and digital person-to-person payments, it seems strange to be writing a paper check and mailing it to pay a doctor's bill.

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According to the U.S. government agency Centers for Medicare and Medicaid Services (CMS), the total amount spent on health care payments in 2017 by consumers, businesses and the government was $3.5 trillion — or $10,739 per person and — accounted for 17.9% of the GDP.

The CMS projects that health care spending will grow at an average rate of 5.5% per year between 2018-2027. It also predicts health care payments in 2027 will amount to nearly $6 trillion and will account for 19.4% of GDP, up 1.5 percentage points from 2017.

Federal, state and local governments make almost half (45%) of all health care payments. Data from the CMS also reveals that households have a heavier burden than businesses since they make 28% of all payments vs. just 20% for companies.

Health care spending per person was the highest for seniors (65 and older) at $19,098 in 2014. In fact, seniors account for only 15% of the population yet make 34% of health care payments. In comparison, spending per child in 2014 was $3,749 and for a working age person it was $7,153.
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While U.S. health care may be world class, how providers, institutions and insurance companies send out bills and statements is stuck in the 1950s, evidenced by the heavy reliance on paper mail. According to InstaMed, a health care payment network, 72% of consumers want to receive electronic statements and bills yet 42% of health care providers are unable to digitally deliver them forcing consumers to look in their mailboxes. Currently just 17% of consumers receive electronic bills.

About 90% of health care providers leverage paper and manual process to send out and collect on their bills, and 91% of providers still receive paper checks from one or more payers. Despite the high usage of paper, 82% of providers prefer EFTs from their payers according to InstaMed.

Earlier this year InstaMed was acquired JPMorgan Chase for $500 million.
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Only a decade ago, many employer sponsored health insurance plans did not require covered workers and their families to pay a deductible for receiving treatments or prescription drug purchases. Today 85% of employer health plans have a deductible, up from 59% in 2008, according to the Kaiser Family Foundation.

In a double blow to consumers, not only are more workers paying a deductible, the deductible level is continually rising. Kaiser reports that the average deductible in 2009 was $533 for a single person. In 2018 that deductible had grown to $1,350 for a single person — an increase of over 150% over that time period.
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Three-quarters of health care providers report that it takes more than 30 days to collect on any medical bill, according to InstaMed's recent Trends in Healthcare Payments Study. Many (69%) providers also noted that they saw patient cost responsibility rise in 2018 over 2017.

The InstaMed study also noted that 93% of consumers were surprised by a medical bill in 2018. Additionally when the bills are sent to consumers they are not always straightforward — 70% of consumers are confused by medical bills and 71% of consumers are confused the Explanation of Benefits sent by insurance companies.
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Despite the heavy reliance on paper in the health care industry for sending out bills and statements, many consumers use a variety of different methods to pay their bills including digital means. Based on data from a recent Elavon Healthcare Payments Insight Survey, almost one-third (32%) of consumers pay their bills by mail, just edging out bank online bill pay which came in at 31%.

Paying with a mobile app came in sixth in popularity, with 23% of consumers using it to pay a bill. Given that many consumers today own a smartphone (77% overall in the U.S.) it is a channel that should be expected to grow in popularity.