No more “pay-and-chase” There's

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					Employee Benefits

No more “pay-and-chase”: There’s a new and better
solution for out-of-pocket healthcare expenses—FSA
consumer credit cards
by April Klein, CFG Insurance Services

         ou have probably heard of employees using credit or    most notable benefits is the elimination of the “pay-and-
         debit cards to pay for out-of-pocket healthcare        chase” phenomenon often found with flex debit cards.
         expenses. While this method of payment is not
new—and does not arouse a great deal of interest among          The problems with debit cards
employers—there are some technical changes that will make          “No one likes the ‘pay-and-chase’ concept with debit
the healthcare credit card more attractive.                     cards,” says Mickey Webb, vice president of CFG’s
  Starting January 1, 2004, CFG will offer a new credit card    employee benefits. “After the plan pays for the entire balance
to clients that will work with consumer-driven accounts, such   of the card, if a claim is unqualified, the plan administrator
as flex spending accounts and the new WiseHealth plan,          must go to that employee and demand payment, or deduct
which is centered around an HRA (see back page for              the amount from their paycheck. But if the employer is in a
details). What makes the card more attractive? One of the       state that doesn’t allow employers to deduct money from the

Update • November—December 2003                                                                                        Page 3
Employee benefits

paychecks, this only adds complications to the process.” She
went on to point out that not many employees would be                It can do more than increase
anxious to tell their employer they need to pay the pretax plan      retention
   The basic idea for using debit cards for pretax plans is            A health credit card might make your employees
nothing new. In fact, although the cards have been around for        happy and increase retention. But is there anything
a few years, most employers were reluctant to put them into          else in it for you? Absolutely!
practice until last May when the IRS officially accepted their         You can use the card to further engage employees
use (IRS Revenue Ruling 2003-43). Designed to work in a              in a consumer-driven plan design—one which can
similar manner to any other debit card, an employee presents         help you reduce health insurance costs.
the card at the time of purchase, and the payments are                 The plan design is called WiseHealth, and it’s only
deducted directly from his or her Section 125 flex account.          available through CFG and HealthPartners. A credit
No more waiting for reimbursement checks to arrive, double           card for your employee’s healthcare expenses is just
out-of-pocket payments, forgotten purchases—all of those             one among many incentives that could make the plan
things that make the convenience of a flex plan, well, not so        a good choice for your workforce.
convenient. Also, most debit cards can provide account access
on the web 24 hours a day.                                             WiseHealth is the next generation of consumer-
   Yet the main problem arises when an employee uses his or          driven health plans for employers with 50 or more
her debit card for purchases not qualified for the pretax            employees in Minnesota and Western Wisconsin. See
account. Issuing card companies have attempted to set up             the back page for more information, or call CFG at
safeguards to help prevent the abuse of debit cards and stop         952.945.0200.
inappropriate purchases. For some cards, an unqualified
purchase would automatically send an e-mail or letter
directly to the employee demanding payment. If the state          items at the same time they pick up their prescriptions and
laws allow, the employer could deduct the expense directly        over-the counter drugs. When an employee goes to
from the employee’s paycheck. Someone, however, would             Walgreen’s, he won’t have to separate his toothpaste and
still have to carefully watch all claims paid by the flex-        35mm film from the prescription drugs. Rather, he would be
accounts to make sure no unqualified purchases go through         able to send them all through under one card.
unnoticed. If such a claim does go through, the “chase” is on        After the card is swiped for the entire amount, the
to demand reimbursement for items already paid in full by         employee would still need to submit the receipt and other
the account.                                                      required information to the plan administrator, who would
   Another problem with debit cards is that many are “vendor      then review the claim. If the claim is approved, the
specific,” meaning that the cards could only be used at           administrator would release the money from the employee’s
predetermined store locations. This would not be a problem        plan account and forward it to the bank to pay for the charge.
in the days where the only place to buy prescription drugs        Monthly statements are provided for the remaining balance
was at a pharmacy, but nowadays, many people just buy their       on the card (in the above example, for the toothpaste and
prescriptions at Wal-Mart or Target. Card companies couldn’t      film), where the employee would have to send payment
exclude such major stores from the vendor list, leaving open      directly to the credit card company just like any other credit
a vast array of unqualified purchases.                            card. Additional benefits include a 25-day grace period, and
   “These reasons are precisely why we at CFG have not            the benefit that the card is granted based on the merits of the
adopted the debit card system for our cafeteria plans,” says      employer, not the individual employee.
Webb. “We wanted a better solution for our clients.”                 Benefits for employers and the plan administrators will
A better solution: FSA consumer                                      • No pre-funding of the card account.
credit cards                                                         • Monetary savings due to increased participation in pre-
  The new FSA consumer credit cards were designed around               tax benefits.
the operations of a consumer credit card versus the debit            • Security that any misuse of the card can result in
card or corporate credit card approach. Created to simplify            deactivated or suspended cards.
administration, the cards ease payment while keeping 100             • Online access to employee accounts, status reports, and
percent compliant with IRS Ruling 2003-43. They would                  new card setup functions 24/7.
provide the same benefits that make the debit cards so               A credit card for your health? Believe it, because it just
appealing (immediate reimbursement, less paperwork, online        might be the answer to your cafeteria plan administration
access to statements), but without the dreaded “pay-and-          headaches. Because the credit card will be implemented on
chase” that can make debit cards a hassle. Because the cards      January 1, 2004, now is the time to call CFG for more
are consumer credit cards, employees can purchase personal        information at 952.945.0200.

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