Why do claims payers still write checks?

Paying by checks is so 20th century. Why do claims payers persist on using them in 2015, when they are legally able electronically or by debit card to pay pretty much or all of their indemnity payments and reimburse the 80 million medical invoices they receive each year?

In 1979, checks were used in the United States for 86% of all non-cash payments.  Dependence on checks since declined, and at an increasing pace. In 2006, according to the feds, of 96 billion non-cash payments made, checks accounted for 33%. Other payment channels that year were debit cards, 27%; credit cards, 23%; and direct electronic transfers, 17%.

The check was a darling of the 20th century American banking system, as it streamlined funds transfers, and personal checking accounts grew enormously in number, along with the spread of retail branch banking.

Goodbye to that. About half of all individuals between 18 and 24 today either do not have bank accounts or are “underbanked,” a term used to define persons with a bank account who often use check-cashing services, payday loans and other legal ways or means for short-term solvency. In Texas, 12% of individuals are unbanked, and 24% are defined as underbanked.

The density of branch banking, after growing greatly since the 1960s, thanks largely to suburbanization, began to decline in the 2000s.

For payments to medical providers and injured workers, technical and legal issues are largely resolved. The business case is pretty well-established. But claims payers have been extremely slow to adapt. 

The primary reasons, based on my observing this matter for years, appear to be that the business case for the claims payer is not urgent, and regulatory prodding is weak. Any adjustment by the claims payer is placed in a relatively low position on its business processing to-do list.

Almost all states today allow workers’ comp claims payers to electronically receive and pay medical providers. Both parties save on processing costs. Uncertainty declines because cycle times are reduced and online tracking of payment status is available.  

Jopari and other companies have been building for some years the connective infrastructure that allows transmission of medical invoices and clinical documents to claims payers, and electronic payment back to medical providers. Don St. Jacques of Jopari says that with the feds requiring health plans to handle electronic payments, more electronic payment will ensue. Most medical providers to the workers’ comp industry also treat group health and public medical plan beneficiaries.  

As for indemnity benefits, almost all states allow payment by electronic transfer to bank accounts or by debit card, so long as the payer is responsible for all transaction costs. This demand has been met.

In some states, unemployment insurance beneficiaries can receive payments via debit card. Wisconsin, for instance, tells its unemployment insurance beneficiaries that a debit card provides for instant credit on the date of payment, eliminates check cashing, enables purchasing “anywhere Visa debit cards are accepted, including retail stores, grocery stores, restaurants and pharmacies and withdraw cash at ATMs,” and enables 24-hour tracking of balances.

Debit card payment of indemnity benefits can be hugely beneficial to injured workers. Many injured workers survive financially from payment to payment and don’t use banks.  Claims payers, by focusing mainly on their in-house processing cost/benefit, may be undervaluing the business case. 

It’s worth watching how at least two companies providing indemnity debit cards and their claims-paying clients learn about claimant experience. The companies, both of which have gained a beachhead recently, are DataPath and Insurcard. 

Action Claims Administrators, a third-party administrator operating mainly in Arkansas, shifted every existing and new claimant for one of its accounts onto the indemnity debit card system provided by DataPath. Lynn Forbush, who directs the TPA operations, says the service eliminates the risk of lost or delayed checks. Claimants in rural areas no longer have to drive long distances to their banks. “It helps out the adjuster,” she says, “as it does away with phone calls. A one stroke deal. It’s almost like online banking.”

Bob Woods, senior vice president of claims for Energi, which has York manage its claims, uses Insurcard. He says, “We can overnight a debit card to the worker. We can load the card, adjust in and out, anytime, via a website. We do not mandate it. The people love it.”  

The card solves a problem arising from preparing and mailing a payment prior to the end of the period for which the payment is intended. The adjuster can select at the last minute the amount of the payment, thus greatly reducing the chance of overpayment. Both Forbush and Woods cited this feature.

A debit card can be activated simply by a unique identifier number, without the name of the beneficiary being printed on the card. Thus, an employer can hand its employee a card at the worksite, or a medical provider can give a card to the worker at the clinic, with instructions on how to activate the card, which the claims payer can fuel with funds as it chooses.

If a debit card causes the worker to regard the claims payer more favorably, shouldn’t that be included in the cost/benefit analysis? It bears repeating that the technical and legal issues have been largely resolved for electronic transfer and debit cards to replace checks. 

Danielle Lisenbey, chief executive officer of Broadspire, says, “We have a couple of options we are looking at but have not yet moved into this [indemnity debit card] payment system. We have implemented what is called a virtual card for payments to providers first, and it's been successful for us. It is likely that indemnity will be more of a 2016 initiative for us."

In our personal lives, we benefit from innovation in funds transfer, such as being able to deposit a check by taking a smartphone photo of it. Why hold back 21st-century advances from the workers’ compensation industry?