Health Insurance Reform: Standards for Electronic Transactions. a. Affected Entities


An employer or sponsor can respond to a bill from a health plan by using the ASC X12N 820 to electronically transmit a remittance notice to accompany a payment for health insurance premiums. Payment may be in the form of a paper check or an electronic funds transfer transaction. The ASC X12N 820 can be sent with electronic funds transfer instructions that are routed directly to the Federal Reserve System’s automated health care clearinghouses or with payments generated directly by the employer’s or other sponsor’s bank. The ASC X12N 820 transaction is widely used by many industries (manufacturing, for instance) and government agencies (Department of Defense) in addition to the insurance industry in general. However, the ASC X12N 820 is not widely used in the health insurance industry and is not widely used by employers and other sponsors to make premium payments to their health insurers. This may be due, in part, to the lack of an implementation specification specifically for health insurance.

Currently, most payment transactions are conducted on paper, and those that are conducted electronically use proprietary electronic data interchange standards that differ across health plans. We cannot quantify how many of these transactions are conducted on paper, but anecdotal information suggests that most are. We believe that the lack of a health care industry standard may have imposed a cost barrier to the use of electronic data interchange; larger employers and other sponsors that often transact business with multiple health plans need to retain duplicative hardware and software, and human resources to support multiple proprietary electronic premium payment standards. We expect that the adoption of national standards will lower the cost of using electronic premium payments. This will benefit large employers that can move to a single standard format; national standards will make electronic transmissions of premium payments feasible for the first time for smaller employers and other sponsors whose payment transactions have been performed almost exclusively in paper.

At some point, an organization’s size and complexity will require it to consider switching its business transactions from paper to electronic formats, due to the savings and efficiencies conversion would produce. The ASC X12N 820 would facilitate premium payment by eliminating redundant proprietary formats that are certain to arise when there are no widely accepted common standards. By eliminating the software, hardware, and human resources associated with redundancy, a business may reach the point where it becomes cost beneficial to convert from paper to electronic transactions. Also, those sponsors and health care plans that already support more than one proprietary format will incur some additional expense in the conversion to the standard, but they would enjoy longer term savings that result from eliminating the redundancies.