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Plastic Makes Perfect

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The success of account-based health plans might lie in the cards. Plastic “stored value” cards.

“The card market is doing phenomenally this year,” says Victoria Nipple, executive vice president of Med-i-Bank Inc., Waltham, Mass.

Med-i-Bank, which prefers to go by the name “mbi,” and its competitors help employees use the Visa and MasterCard payment networks to draw on account funds.

If Joe Foreman has a card linked to his flexible spending account, he can go to the pharmacy and use the FSA card to pay for a bottle of over-the-counter allergy pills. The clerk treats the FSA card as if it were any other debit card.

Depending on how the FSA card is set up, Joe might have to submit a receipt to his employers benefits administrator to substantiate that he used the card to pay for eligible drugs, rather than potato chips. But he does not have to worry about filing paper claim forms and waiting weeks for plan administrators to reimburse him.

MasterCard International Inc., Purchase, N.Y., the consortium that manages the MasterCard payment system, now has about 2 million health account cards out in the field, up from none in 1999, according to Ted Dargan, a vice president in MasterCards emerging markets unit.

The number of health cards probably will grow at least 10% to 20% per year for several years, Dargan said.

Med-i-Bank has 750,000 cards in the hands of U.S. consumers, up from 252,000 a year ago, Nipple says.

She would not say how exactly many of mbis health account cards draw on accounts other than FSAs. But the number of mbi cards linked to HRAs and similar accounts probably doubled in 2003 and might have tripled, Nipple says.

Evolution Benefits L.L.C., Avon, Conn., estimates it has issued 600,000 cards, up from 2,500 just 2 years ago.

Some of the other companies in the health account card market include Motivano Inc., New York, and WageWorks Inc., San Mateo, Calif.

Employers and their plan administrators are shifting toward card-based administration partly because employees always have hated filing paper FSA reimbursement forms.

Once employers add medical health reimbursement accounts, prescription accounts and chronic care accounts, depending on paper forms is a nightmare for everyone involved.

The government has helped by clearing up some of the regulatory uncertainty surrounding use of the cards.

The Internal Revenue Service confirmed in a May 2003 ruling that employers can use debit cards and similar cards to administer FSAs and HRAs. The IRS also confirmed that employers can use the debit card payment records themselves to substantiate some very simple, clear-cut claims.

The IRS alarmed the card companies by suggesting that employers might have to send a Form 1099 to each health care provider that received more than $600 from their employees. But President Bush resolved that nightmare Dec. 8, 2003, when he signed H.R. 1.

A small section at the end of the bill–the Medicare Prescription Drug, Improvement and Modernization Act of 2003–declares that employers that use debit cards to run FSAs and HRAs do not have to send Form 1099s to health care vendors.

For the card companies, the current regulatory challenge is persuading the IRS to allow more use of electronic receipts and other forms of electronic substantiation, to reduce reliance on paper receipts.

Evolution Benefits has coped with the substantiation requirements by negotiating deals with pharmacy benefit managers and Web-based pharmacies to get extra substantiation information. But Evolution Benefits and its competitors still depend heavily on use of paper receipts.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.