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Many employers have just started to use card-based systems to help employees draw on flexible spending account funds.

Now, some employers are moving up to cards with “purse” or “bucket” features, so that they can use the cards to administer the new health savings accounts.

Obviously, letting employees get to FSA or HSA funds with a Visa or a MasterCard payment card enhances the customer experience. Offering payment cards also is a concrete way to advance the effort to create a “consumer-directed health care” system that gives individuals more control over how their health care dollars are spent.

The question is this: Once employees have the payment cards, how do you encourage them to be smart health care consumers?

Under current law, when employees contribute income to FSAs, they must “use it or lose it” by the end of the year.

Employees who have HSAs or other non-FSA personal benefit accounts, such as health reimbursement arrangements, usually can roll over unused account funds from one year to the next.

When employees understand the value of keeping funds in their HSAs and HRAs, they will negotiate carefully and be frugal with their funds despite access to payment cards.

The downside is that, for those consumers who are spenders, not savers, payment cards give them easier access to their account funds.

An even more common challenge may be the need to overcome the employee “copayment mentality.” Too many employees think that an office visit really costs $10 and a generic prescription really costs $5.

Employers and their benefits advisors can get around these problems by setting up a system of payment card buckets that allows employees seamless access to funds but encourages them to spend the funds wisely.

The card vendor can help employers meet their goals by using electronic payment systems to “filter” transactions by using the Merchant Category Code assigned to each terminal.

One example of an area in which intelligently designed cards can make a big difference is prescription costs.

Employers who set HSAs must combine the accounts with special high-deductible health coverage.

The good news is that recent Internal Revenue Service guidance lets employers offer prescription drug coverage through a separate, low-deductible carveout program.

An employer with a multi-bucket payment card could put a pharmacy HRA bucket, an HSA bucket and even an FSA bucket on the same payment card.

That way, an employee with high prescription bills could start by using the card to pay for prescriptions with pharmacy HRA funds. Once the pharmacy HRA funds ran out, the card would automatically draw on the HSA funds.

Employers should get detailed information about actual health care spending before designing this type of sophisticated plan. Otherwise, employers could end up increasing their costs by offering programs that provide first-dollar coverage. Additionally, employers and insurers should combine use of a prepaid card with a discount pharmacy program, to keep lack of access to a discount program from increasing prescription drug costs.

In some cases, employers might want to set the payment card buckets so that employees can use pharmacy HRA funds or other funds to pay for Claritin, Pepcid and other useful drugs that are now available without a prescription.

A vendor can filter transactions in a variety of ways. One strategy is to limit employees to buying prescriptions at the pharmacy by using a “real-time interface” with a pharmacy benefit management company or a discount pharmacy card. Another way to filter the transactions is to use the coordination of benefits system at the pharmacy for the automatic substantiation of prescriptions while also allowing employee to buy over-the-counter items.

Today, items can be sorted online at the product code level at the point of sale to determine eligibility. Allowing auto-substantiation of claims improves the consumer experience as it greatly reduces the confusion surrounding what is considered an eligible expense.

If an employee wants to buy a prescription drug, an OTC drug and a magazine at the same counter, the cashier can use the card to pay for the prescription drug and the OTC drug and ask the employee to use cash or another card to pay for the magazine.

is executive vice president of Motivano Inc., New York.


Reproduced from National Underwriter Edition, October 14, 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.