How open-loop networks are changing health rewards as we know them

The best health plan is one that gets used. In this increasingly competitive world, where consumers have their pick of insurance providers through the Marketplace and the average Medicare Advantage beneficiary can choose plans from nine firms, benefits matter — and the more personalized the offerings, the better, said Colin Anawaty, CPO and co-founder of First Dollar, a technology company that builds healthcare benefits infrastructure. “Benefits have been turned into a commodity over the years,” Anawaty said. “Recently, health plans have been differentiating themselves by adding more personalized benefits to address social determinants of care, steer spending, and improve health outcomes.”

In particular, Anawaty said he was seeing a growing demand for open-loop networks for health rewards, which First Dollar offers as part of its Health Wallet platform. Open-loop systems allow maximum versatility in where consumers can purchase health care items, such as over-the-counter (OTC) products covered by health plans based on a federally approved list. “In an open-loop system, like with First Dollar, members can make health-sensitive purchases from more than 42,000 merchants, including all major and regional grocery stores and independent pharmacies,” Anawaty said.

That’s a big change from traditional health rewards systems, which have been closed-loop — a far more restrictive approach that limits the number of vendors, including local and regional small business providers. Anawaty compared open- vs. closed-loop systems to credit cards you can use anywhere vs. gift cards. “You can’t take a gift card from one home improvement store to its rival for a better product at a lower price,” he said, “Further, instead of juggling seven different benefit gift cards, our Health Wallet offers a single card and app experience that works virtually everywhere while restricting alcohol, tobacco, firearms, and cash-equivalents.”

Two decades ago, closed-loop networks made sense for health rewards, Anawaty said. “There weren’t nearly as many manufacturers of OTC items nor the number of benefit programs,” he said. “What’s increased in the last decade or so are private-label products by national retailers, and a more strategic application of supplemental benefits toward chronic populations.” Further, he said, many consumer rewards programs are earned based on positive behavior, and that should entitle users to choice and convenience. “I think a lot of health plans are realizing that their rewards and supplemental programs are as hard to use as they are to administer.” Plus, Colin says that poor consumer experiences result in below-average use, which can impact STAR ratings and health outcomes.

In the future, Anawaty said, he expects to see more and more health plans and benefits administrators adopting open-loop programs with hybrid approaches that help navigate spending, like the ones First Dollar offers. He shared four reasons why.

1. It offers maximum flexibility for consumers. Let’s say you’re traveling for work, and you come down with a cough. You’re far from your usual pharmacy, but it doesn’t matter. With an open-loop rewards system, you can take your health rewards card anywhere that carries cough syrup, whether it’s a corner bodega or a national chain. Anawaty said his benefits were helpful recently when his child was sick. He went to a national pharmacy chain looking for medicine, and the shelves were bare. “We had to run around the city trying to find that stuff,” he said. “But with the flexibility of an open-loop card, I knew it would still be covered, wherever I found it.”
2. Health plans can restrict certain items. Some health plan providers have been leery of using open-loop cards because they worry that members will purchase off-list items, Anawaty said. “Drugstores also sell junk food, candy and alcohol, and they don’t want to be giving members money that is then misused and obviously has a negative outcome on health,” he said. First Dollar takes a blended approach, adopting an expansive approved purchasing list for healthcare items that’s managed by the federal government and is used by every major and regional retailer that wants to accept restricted payment cards for health. “Open loop means a lot of different things, but it doesn’t mean a free-for-all,” he said.
3. Small businesses everywhere are included. While closed-loop benefits generally apply to large, national chains, open-loop cards can include anyone, anywhere. That, Anawaty said, means that someone living in a small, rural community can still purchase at their provider’s office or local pharmacy and people who live far from cities can visit their nearest retailer. “We find that it’s especially impactful in the rural areas, where a smaller store or pharmacy may be better suited at serving the community’s needs,” he said.
4. It’s a step toward future-proofing your health plan. Today, OTC products and health care services offer the best use cases for stacked benefits on an open-loop system. But Anawaty said he has seen more health plans expand to include supplemental benefits targeting certain diseases or paying for services such as pest control. “It’s just getting more and more complex,” he said. An open-loop platform is positioned to include other businesses and allow consumers to pay easily, using either their debit card, mobile payment or tap-to-pay. “You can really impact members, and keep them as members, by providing the right benefits that address some of the issues they’re struggling with,” he said.

Health rewards have traditionally included limited offerings that not all members can access. Now, open-loop rewards offer more choices than ever. Anawaty is betting that will pay off — for everyone.