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'Unbanked' May Soon Equal Uninsured

For consumers fed up with bank fees, prepaid cards may seem like an increasingly attractive alternative today. Some of today's prepaid cards come with an array of features that make them closely resemble checking accounts -- right down to the FDIC insurance the American Express Bluebird Card carries.

However, a study from Jackson Hewitt may give pause to those who might use these cards to join the ranks of the "unbanked." According to the study, those without a checking account may find they are unable to buy health insurance through the government exchanges set to debut this fall.

No checking account, no health insurance?

The coming health insurance exchanges are mandated by the Affordable Care Act. Envisioned as an online marketplace for individuals and small businesses, the exchanges are intended to provide access to affordable health insurance. Families earning up to 400 percent of the federal poverty limit will be eligible for government subsidies to offset their premiums.

The problem, according to Jackson Hewitt, is that health insurance companies typically require families to use checking accounts to pay monthly premiums. As of yet, the government has not required companies to accept other forms of payments such as credit or debit cards. As a result, the study says up to 8.5 million uninsured Americans may be blocked from buying on the exchanges because they do not have a checking account.

Just one of the problems with being unbanked

Losing access to health insurance coverage is just one potential concern for those who choose alternative financial instruments over bank accounts. Although appearing similar to credit and debit cards, prepaid cards have some significant differences, including a lack of federal fraud protection.

Under the law, a consumer is only responsible to pay for the first $50 of unauthorized charges should their credit or debit card be lost or stolen. However, prepaid cards do not carry this protection, meaning users should be careful to protect their prepaid cards as they would cash.

In addition, with the exception of a few such as the Bluebird Card, most prepaid cards are not insured by the FDIC. That means if the issuing company fails, there is no guarantee cardholders will get their money back.

Finally, while many consumers see prepaid cards as a cheaper option than a checking account, it may be difficult to accurately gauge their cost. The Pew Charitable Trusts has noted that prepaid cards issuers are not required to disclose their fees upfront, but that those who do usually list between seven and 15 different fees.

While prepaid cards may be convenient and appropriate in some situations, consumers may want to think twice before closing their checking and savings accounts. For those concerned about high bank fees, online banks often offer checking accounts with no monthly fees or minimum balance requirements -- not to mention the ability to pay future insurance bills.

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