Payments

Can we buy health insurance through prepaid cards in US? New IRS rules say YES

MEDICI

The IRS (Internal Revenue Service) issued a rule on 28th august 2013, that will allow individuals without traditional banking accounts to acquire health insurance. The rule requires insurance companies to accept payment via prepaid debit card, paper checks, cashier checks or money orders from households which do not have traditional bank accounts. There are an estimated 8.5 million Americans without health coverage according to this new rule health plans will no longer have to accept cash. This means that the 8.5 Mn Americans will have difficulty buying health insurance from October 1st, 2013 unless they switch to buying insurance through prepaid cards or other traditional banking channels except paying through cash.

The number of unbanked American citizens is just below 50 million, according to an estimate by Jackson Hewitt, tax service. This figure is set to increase in the near term as the cost of traditional banking continuously rises giving rise to payments through prepaid cards. Use of general purpose prepaid debit cards, seen as a low cost alternative to traditional banking accounts has seen an exponential increase in their number. Thanks to wage based payments made through prepaid cards.

According to Jackson Hewitt, one out of every three African Americans and Hispanic Americans are unbanked and they are 43% more likely to be unbanked relative to white population. USHCC’s Chairman Marc Rodriguez supported this new ruling by stating "American families outside of the banking mainstream will now have additional options as they pay for their coverage."

Insurance companies will now have the power to deduct payments automatically from the bank accounts of those insured. Brian Haile, Senior Vice President of health care policy for Jackson Hewitt Tax Service remains concerned about this rule, he says “We were surprised by this policy choice, and we fail to see how limiting consumer options for automated recurring premium payments is consistent with the goal of ensuring continuous enrollment and minimizing attrition in the ACA’s (Affordable Care Act) insurance affordability programs. We urge federal policymakers to reconsider this tentative choice.”

LTP View: Under the new IRS rules about individual mandate, consumers who are uninsured are likely to face tax penalties. The focus to help consumers avoid these penalties is necessary. Convenient and affordable payment methods are needed for consumers who are required to purchase health coverage. Through this new ruling, a large number of the population may have been forced to use prepaid debit card for acquiring health insurance. There is a public outcry in the US on getting wages paid through prepaid debit cards, come October 1 the public outcry may go up as insurance payments though cash have been disabled for the unbanked.

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI team who collaborate to create FinTech insights.

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