A new report from Aite Group, a financial services company, finds that patient overpayment of claims is becoming more common—but refunds from providers have not kept up with other customer service trends. Billing and collections are often digital transactions, the report explains, but refunds are still disbursed most often through paper checks—a transaction that consumers have little appetite for and one which may add to negative impressions of providers.

"Health care providers' digital payments strategies centered around engagement and collections at the point of service are disconnected from refunding patients for paying too much," said Michael Trilli, research director at Aite Group. "A reason for the disconnect is that refunds are an accounts payable function, but regardless of the reason, in a retail health care payments model, providers' payments strategies need to bridge the divide between collections and refunds."

Changes in insurance models = changes in refunds

The Aite report is based on consumer surveys and interviews with banking and payment experts. It finds that the amount of provider refunds to consumers is expected to grow by 5 percent from 2018 to 2022. The report estimates refunds totaled 2.6 billion in 2018 and will total 3.1 billion in 2022.

The growth of refunds is fueled in part by the ongoing practice of shifting costs to consumers via deductibles and copays. "Refunds are patient and plan agnostic, yet the increase in patients enrolled in high-deductible health plans (HDHPs) has a direct impact on this disbursement market," the report said.

This finding is echoed in a separate analysis by InstaMed, a company that provides payment systems for health care companies. The InstaMed analysis said that with providers collecting more payments directly from consumers, there are many opportunities for overpayment, creating the need for refunds. "The complexities that are inherent in health care payments make it difficult to determine the exact amount a patient will owe, which can result in over-payment," the report said. Considering the lack of transparency in both provider and health insurance systems, the opportunities for confusion and mistakes are plentiful.

Reimbursements—stuck in the stone age?

At a time when convenience is one of consumers' top demands, the refund-by-check approach seems badly out of step. The Aite report found that in 2018, 74 percent of refunds were sent by check, and that percentage will increase if current trends continue. "This is an optimistic sign for lockbox providers but is not so great for providers' bottom lines," the report noted. "It points to an opportunity for card networks, acquiring processors, and banks to drive electronic alternatives into this payables market."

The InstaMed analysis echoes the concern over paper check refunds. "Only 24 percent of consumers actually want to use checks to make health care payments," the report noted. "If that's the case, it is likely that they would also prefer not to receive refunds in the form of a paper check." In addition, that report noted that because providers often process refunds during specific billing cycles, consumers can wait weeks for refunds to be issued.

"Refund checks can have a negative effect on the provider as well. In a world that is moving further away from paper, a refund check is just another paper payment that involves print and mail costs, as well as the administrative cost of staff manually posting and reconciling that paper-based refund," the InstaMed report said.

The Aite report concludes that consumers' dissatisfaction with check refunds is "intense." This added frustration to a system that is already complex is something that providers should be concerned with. Replacing refund checks with electronic payment methods or using collections models that switch refund disbursement to a third party may address some of the problems with the current system, the report said.

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Health care refunds are becoming more common, but are lagging behind the times

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