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How Virtual Cards Complement the ACA EFT Mandate

Posted March 5, 2015


In the complex world of insurance claims payments, insurers and third-party administrators across the U.S. are seeking new ways to gain efficiencies and savings in their processes. Healthcare reimbursement costs are rising, while insurance premiums are under downward pressure from highly competitive marketplace exchanges and high deductible health plans. And just like there is no single cause for the rising costs of healthcare, there will be no single solution either. So it’s important to examine all options to reduce the rising healthcare reimbursement and administrative costs that healthcare payers are facing .

Of the ever-increasing healthcare costs, how much is attributable to administrative and payment expenses? According to the Kaiser Family Foundation, annual healthcare expenditures represent over $2.6 trillion in the United States, of which close to 10 percent is spent on healthcare administrative costs.1 The “system-wide cost” of using paper checks for healthcare claim payments is $8, while it costs on average about $16 to process a paper claim received through the mail.2 To help address this issue, on January 1, 2014, a provision under the Administrative Simplification Section of the Affordable Care Act (ACA) — known as the Adoption of Standards for Health Care Electronic Funds Transfers (EFTs) and Remittance Advice — went into effect. This mandate provides standards and guidelines to promote the migration of healthcare claim payments and explanation of payments (EOPs) from checks to EFTs and electronic remittance advices (ERAs). The U.S. Department of the Treasury estimates that electronic payments will save the government 12.5 percent on every Medicare claim paid by EFT versus check as a result of the mandate.3 That’s a significant savings.

How much could your organization save through this initiative?

Automated Clearing House (ACH) Transactions

The ACA EFT Mandate states that a healthcare payer must be able to offer and support electronic claim payments through ACH transactions if the healthcare provider asks for it. In addition, the mandate specifies that the Electronic Data Interchange (EDI) 835 ERA format must also be sent in support of that payment. Additionally, the healthcare payer should use a trace number (TRN) to help tie the ACH payment back to the 835 ERA. A single ACH payment can represent many claim reimbursements contained with the corresponding 835.

There are a couple of important factors to keep in mind when considering the implementation of ACH and the 835, which will impact a provider’s willingness to accept and their ability to process these new transaction types

  • The electronic ACH payment and the 835 ERA typically follow different paths to reach the provider. The ACH credit goes through the banking system and posts to the provider’s receiving bank and account. The 835 ERA typically goes through a network of clearinghouses, which are third-party data processing companies that specialize in the validation and routing of claim information between payers and providers. This often results in timing differences and reconcilement issues for the provider as well as customer service inquiries for the payer.
  • It is also important to note that many smaller to mid-sized providers do not have the technical capabilities or infrastructure to support the 835 ERA processing, nor do they prefer to share their personal banking account information with third parties, a requirement for ACH processing.

Although the EFT Mandate focuses on ACH payments, it does not prevent a healthcare payer from paying a provider through other electronic means. The key to successful migration away from paper claim checks and paper EOP advices is for healthcare payers to support multiple electronic payment types and remittance options based on provider preference. This holistic approach often incorporates virtual cards as a check replacement for smaller and mid-sized providers as well an interim process for larger providers who are in the stages of migration to full ACH and 835 ERA acceptance.

Virtual Card Payments

Virtual cards offer a number of advantages over ACH and other EFT options, including increased security, tight controls, potential rebates, and a two-way transaction capability that facilitates reconciliation of overpayments.

Virtual cards function similarly to physical cards, but with additional security and control that allows payments to be made without a physical card being present. Single-use virtual accounts (also known as single-use ghost accounts or SUGAs) increase this security since the 16-digit virtual card number is used only one time and then closed after a determined time period. These SUGAs can also be tied directly to a claim and or case number for enhanced tracking capability.

And, unlike with ACH transactions, virtual card payments provide the claim remittance information together and at the same time. The virtual card remittance can come in many formats, but most often it’s a simple PDF version of the human readable EOP, which can be accessed online and downloaded. There is also most often a one-to-one relationship between the virtual card payment and a claim submission. All of this provides for a simple known payment and remittance application process for the provider.

Benefits of Virtual Card Payments for Healthcare Payers:
  • You control and track the amount, timing and location of where the virtual card number is used on a real-time basis, which typically eliminates misuse or fraud. The same consumer card chargeback and dispute coverages are also made available.
  • Virtual card programs can provide cash reward rebates based on the volume of claim payments made through the program, which can be maximized through a holistic electronic payment provider campaign.
  • Using either the MasterCard or Visa networks provides a single and secure payment channel to almost any healthcare provider without the costs and burdens of having to implement and connect directly to each provider’s bank account for ACH.
  • Significant reduction in back-office processing times and costs associated with producing paper checks and EOPs. These include banks fees for accounts and check processing as well as printing and mailing costs for both paper check and EOP fulfillment.
  • A two-way transaction capability that facilitates reconciliation and returns of provider overpayments via the virtual card settlement reversal and void capabilities.
Benefits of Virtual Card Payments for Healthcare Providers:
  • No need to share and maintain bank account information with healthcare payers.
  • Reduced processing time and payment float associated with receiving paper checks and EOPs. Elimination of bank check and lockbox processing fees.
  • Improved payment application and reconciliation through electronic receipt of combined payment and EOP on an individual claim basis.
  • Single secure electronic channel to receive electronic payments and EOPs together and online from multiple payers.
  • A trusted and known payment process that requires no need for special software installation, application licenses, or individual payer implementation and connectivity.
How WEX Can Help

Want to learn more about how virtual cards can help with your claims payments? WEX offers a comprehensive virtual payment platform that meets the needs of insurance carriers, third-party administrators and clearinghouses for medical, dental, pharmacy, workers’ compensation and property/casualty injury claims. And our platform complies with the ACA EFT Mandate.

If you would like to learn more, please contact us.

1 Getting to Critical Mass: The National Mandate to Transform Administrative Data Exchange, Kaiser Foundation.

2 Healthcare EFT Standard and Operating Rules – WIIFM? NACHA.

3 Making the Most of the EFT/ERA Mandate, The Institute of Financial Operations and AOC Solutions.


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