It's easy to pay insurance premiums by direct withdrawal from a bank account. But if you have no bank account, how will you pay for health insurance purchased in one of the new marketplaces?
The U.S. Department of Health and Human Services recently made a rule that will help consumers without bank accounts buy insurance in the marketplaces created by the federal Affordable Care Act (ACA), experts say. The HHS decided that insurers must accept a variety of forms of payment -- including general purposes prepaid cards, money orders and cashier's checks, along with paper checks and direct withdrawals.
But some experts say the rule doesn't go far enough to help consumers who lack bank accounts.
"It's a great first step," says Dan Schuyler, director of exchange technology at health care consulting firm Leavitt Partners. But, he says: "There's a huge unbanked population, and many have never dealt with these methods of payment."
Who are the unbanked?
About 8.2 percent of U.S. households are "unbanked," meaning they have no bank account, according to the Federal Deposit Insurance Corp. (FDIC). Another 20.1 percent of households are "underbanked" -- meaning they have a bank account but also rely on nonmainstream financial services such as check-cashing businesses or payday loans.
So, why are some consumers unbanked? According to an FDIC survey of the unbanked, six common reasons include:
- Inability, whether real or perceived, to afford the cost of opening and maintaining a bank account.
- Problems with a previous bank accountfor example, repeated overdrafts -- that may have caused a consumer to be reported to ChexSystems, a national database that banks typically check before opening a new account. About 8.3 percent of the unbanked have had a troubled history with a financial institution, according to the FDIC.
- Lack of documents required to open an account. Some unbanked consumers, for example, don't have a photo ID such as a driver's license.
- Difficulty getting to or using a bank. Some consumers lack transportation or have jobs that require them to work during the hours banks or credit unions typically are open.
- Need for immediate access to funds. Some consumers can't afford to deposit their money into a bank and then wait a day or more for their funds to become available to pay bills or buy groceries.
- A negative perception of financial institutions. Some consumers either don't understand how banks work or do not trust banks to hold their money.
Some segments of the population -- specifically low-income households, minority consumers and immigrants -- are more likely than others to be unbanked, according to the FDIC. About 71 percent of unbanked households have incomes of less than $30,000 a year, according to the FDIC. And African Americans and Latinos are more than 40 percent more likely to be unbanked than whites, according to a 2013 report by Jackson Hewitt Tax Service, "Uninsured + Unbanked = Unenrolled."
While some unbanked consumers want to or would consider opening a bank account if given the opportunity, others would not, says Lucy Mullany, senior policy associate at the Heartland Alliance, an Illinois nonprofit organization that works with the unbanked.
"Some people just don't want to be banked," Mullany says. "That's why it's important to have a lot of payment options."
Obamacare and the unbanked
Many consumers who don't have bank accounts also lack health insurance, experts say.
In fact, according to the report by Jackson Hewitt, 1 out of 4 consumers eligible for subsidies under the ACA -- that is, consumers who have household incomes of 100 percent to 400 percent of the federal poverty level -- are unbanked.
And nationally, about 8.5 million people are both unbanked and uninsured, Mullany says.
"A lot of people who are unbanked or underbanked are uninsured for some of the same reasons,” Mullany says.
The ACA goal of getting and keeping Americans enrolled in health insurance could be undermined if the unbanked have trouble paying their premiums, experts say.
But the federal government could make it easier for the unbanked to pay by expanding options even further by doing the following:
- Require insurers to let consumers set up automatic payments with a debit, credit or prepaid card. Just like allowing automatic debits from bank accounts, this would make it easier for consumers to make payments on time and consistently, Mullany says.
- Encourage insurers and financial services providers to create other payment options that would work for consumers who prefer to deal only in cash. For example, Schuyler says it would be helpful to offer a method of payment in which a consumer could go to Western Union or a similar business and make a cash payment that would then be submitted to the insurance company on their behalf.
"What I'd like to see is as much innovation in this space as possible," says Brian Haile, senior vice president for health policy at Jackson Hewitt Tax Service.
Many unbanked individuals might not have much experience with health insurance and will need to learn the ins and outs of how it works, Schuyler says.
"There's going to be a lot of education and outreach and handholding that needs to be done," he says. "You don't want to put people through the entire enrollment process and then find that none of payment methods makes sense for them."