How Debit Cards Will Juice Worksite Sales

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By giving employees the convenience of paperless purchasing, debit cards promise to spur worksite sales of spending accounts for an array of qualified benefits, including health care, public transportation and child care, experts say.

Debit cards will almost certainly be intrinsic to the success of high-deductible or consumer-driven health care plans, because these plans are founded on the new health care spending accounts established by Congress this year, executives in the debit card industry say.

With debit cards available from a variety of vendors, employees can pay for health care expenditures from their flexible spending accounts, health care spending accounts and health care reimbursement accounts.

The easy-payment power of these cards offers health plans, third-party administrators and employees an efficient way to manage benefit payments. These debit cards eliminate the need for employees to use checks, cash or personal credit or debit cards to pay for medical services, prescriptions or other qualified purchases such as childcare. Pharmacies, hospitals or other vendors swipe the cards through ordinary credit card terminals, and transactions are authorized and the purchase deducted from the benefit spending account in seconds.

Money stored in the employees FSA, HRA or HSA can be put in a variety of purses and disbursed within seconds according to various criteria designed to verify each expenditure as tax-qualified.

Typically, employees can store their spending account funds in various pockets, such as dental, vision care and supplementary medical benefits, to be debited as needed.

The cards generally are sold through third-party administrators or through health plans themselves, which attach the card to their administrative services.

Vendors in the field include Evolution Benefits LLC, Avon, Conn., which offers the Benny Card.

“The whole intent of the card is to get rid of paper,” says Anne Carpenter, vice president of marketing for Evolution Benefits. “They no longer have to submit receipts to get reimbursed. And the information store on the card can be used to give the IRS proof that each expenditure was for a legitimate medical purpose.”

Prescriptions represent 53% of all expenses in medical spending accounts serviced by the Benny Card, and Evolution has relationships with 6 of the top pharmacy benefit managers. When prescriptions are filled, co-pays are paid right in the pharmacy, where the purchase is authorized and tracked automatically.

With consumer-directed plans, where all expenditures are paid out of the employees health care spending account, the debit card keeps track of each prescription purchase, facilitating the verification of purchases as legitimate for IRS purposes. Employee claims readily can be matched electronically with data files from a health plan, producing a record that satisfies IRS documentation requirements, says Carpenter.

“Thats the future of debit cards: eliminating paper,” she observes. “People arent interested in having to submit receipts, and plan administrators dont want to deal with paper.”

The big advantage of offering the benefit debit cards is a huge increase in sales, industry executives believe. For example, Wells Fargo Health Benefits Services, a TPA, doubled its health care saving account business a year ago after it introduced the Benny Card, according to Carpenter.

More typically, offering a card can juice up a flexible benefits plan or an HRA with increases of 20% to 40%, say executives in the industry.

“Employers benefit because their employees are happy with the plans, and they also increase their FICA tax savings because it reduces employees taxable income,” Carpenter points out.

HSAs, which were introduced this year, are still too new to be a big factor in the health care market. But employers that introduce these plans are most interested in tying them to debit cards, she says.

Evolution expects to offer its debit cards soon in partnership with a number of national banks that are interested in offering it as part of a comprehensive package of financial services, including trust services and check writing, for business clients.

“If the employee buys a high-deductible plan, the TPA would be able to offer him a health spending account complete with money market funds, checks, with the bank doing the recordkeeping,” says Carpenter.

Claims Fusion, Sarasota, Fla., offers both debit and credit cards through TPAs.

“A credit card offers more flexibility, because it enables a user of an FSA or HSA to spend money before it is in their account,” says Craig Barcomb, president of Claims Fusion.

Mark Huber, CEO of Payflex Inc., a TPA in Omaha, Neb., is not so sure about the future of HSAs, however. “Theres a niche market for them with self-employed or professional organizations like doctor clinics or law firms, which can use them like an IRA. But for Joe Lunchbucket, I dont see much value.”

Huber does see strong growth for FSAs, however, particularly if tied to debit cards.

“Employer cost-shaving shifts more of the cost of health care to employees, so weve seen a pretty good increase in our client base for spending accounts,” he says. “Its partly driven by the debit card, which makes it easier to access funds. The critical issue that makes it work is they dont wait for reimbursement.”

Rob Butler, executive vice president at MBI Inc., Waltham, Mass., says his companys FlexCard is placed with over 13,000 employers and 1 million employees and beneficiaries.

In his experience, he says, the use of debit cards can spur spending account enrollment by 80% and result in a 50% increase in contributions in these accounts.

He estimates, however, that only about 1% of employers served by his firm are using HDHPs and the HSAs that go with them.

“Its too early to tell how much impact debit cards will have on HSAs,” he says. “But we believe the ability to have more control on how they spend their money needs to be facilitated. People will adapt to HSAs if the cash is readily available. But if you have to jump through hoops to get your money, its not going to work.”

In addition to selling debit cards for health plan administration, MBI also offers its licensed software to health plans to help them manage assets in FSA, HRAs and HSAs.

Mark Keck, an executive vice president of Smartflex LLC, a division of Motivano Inc., New York, says the ability to put benefit spending funds into specific buckets is a big attraction of health spending debit cards to many employees.

“They can be designed to pay wellness benefits, or dental only or vision only, depending on how the plan is set up,” Keck says.

Smartflex is positioning itself to capture a share of the HSA market by offering an automated process that facilitates the substantiation of health care purchases. Employers can set up cards to filter out unqualified expenditures, so that it cant be used, for example, at restaurants or hotels. And for IRS requirements, the Web site lets employees readily print out a transaction history.

Moreover, once an employees health account hits a certain size, say $200, employees can invest their funds into 1 of 13 funds. This takes advantage of the fact that with an HSA, unlike FSAs and HRAs, funds can be accumulated indefinitely and rolled over from year to year.

Keck believes any company that comes to market with an HSA will be “significantly behind the curve if they dont have a card tied to it.”


Reproduced from National Underwriter Edition, November 24, 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.