Debit Cards – Enhancement or Enigma by huangyuarong


									   Debit Cards – Enhancement or Enigma?
                                                                                                    By: Sandy Wood

    In June we published an article on Flexible Spending Accounts. A popular enhancement being
    added to these plans, as well as Health Savings Accounts and Health Reimbursement
    Arrangements, is the debit card. At a quick glance, the debit card seems easy enough. However,
    when employees find out (sometimes too late) that some services and purchases require the
    submission of receipts, it can cause plan dissatisfaction. Make sure your employees know the
    rules to ensure smooth administration of your debit card program.

  Debit Card Basics                                           No Backup Documentation Needed
  On May 6, 2003, the IRS issued final guidelines on the      There are three instances where backup
  use of debit cards for Flexible Spending Accounts           documentation is not needed from the employee. For
  (F.S.A.). These rules were later expanded to Health         all other items purchased with the debit card, the
  Savings Accounts (H.S.A.) and Health Reimbursement          employee must submit proof after the fact to the
  Arrangements (H.R.A.).                                      administrator. The three “automatic” instances are:

  Debit cards are stored-value cards that can be used to        1. Copayment Match - Occurs if the dollar amount
  pay for health services received or health products              of a transaction at a health care provider equals
  purchased that qualify as a 213(d) expense. This                 the dollar amount of the copay under the health
  includes medical, vision, dental, and prescription               plan. This includes office copays and
  services and some over-the-counter items.                        prescription copays.
                                                                    Caveat: If a prescription is less than the exact copay
  The card can only be used at merchants and service                amount, a claim will need to be submitted. Also, if
  providers that have merchant category codes related               more than 5 copays are paid under one bill, the claim
  to health care. This includes pharmacies, dentists,               must be submitted for verification.
  vision care offices, hospitals, and other medical care
  providers.                                                    2. Recurring Expenses – The plan can permit
                                                                   automatic reimbursement without further review
                                                                   for recurring expenses that match a previously
  Employee Certification
                                                                   approved expense in amount, provider, and time
  At the time an employee signs up for a debit card, he
  must certify that the card will only be used for eligible
  medical care expenses of the employee, the                    3. Real-Time Substantiation – If the plan
  employee’s spouse and dependents. He also declares               administrator is provided with the medical
  that the expenses will not be reimbursed by any other            expense backup by the merchant, provider, or
  source.                                                          health plan, the employee does not need to
                                                                   submit the claim.
  An important part of the employee agreement is that
  he will retain documentation for any purchase made          Manage Employee Expectations
  with the card, in the event the plan administrator needs    The number one employee complaint that we hear
  additional backup data to authorize the expense             about debit cards is the continued paperwork. Most
  through the program. If receipts are not available on a     employees assume that paperwork will be a thing of
  questioned claim, the employee will need to repay that      the past with the debit card; however, claims must still
  claim amount to the plan with after-tax dollars.            be submitted for the lion’s share of purchases.

About the Author: Sandy Wood is the President of Integrated Benefit Strategies, an employee
benefits consulting firm located in Seattle, Washington. She has earned a respected reputation as
an innovator in the benefits industry for her development of meaningful data reporting and
streamlined benefits programs. Sandy can be contacted at 206-388-0134, ext. 23 or toll-free at
800-742-0467. She can also be reached via e-mail at

                 Integrated Benefit Strategies LLC • 800.742.0467 •

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