Diana Andersen wanted to eliminate the shoebox effect. Employees at Zions Bancorporation would collect their receipts for visits to the doctor’s office or for their children’s day care in shoeboxes to submit for reimbursement from their flexible spending accounts. Andersen, the company’s vice president and director of corporate benefits, worried that the inefficient and cumbersome process for reimbursement dissuaded employees from using flexible spending accounts.
Three years ago, Zions began offering employees debit cards so they could pay for medical or child-care expenses directly from their flexible spending accounts. The first year, enrollment went up 75 percent, Andersen says. Currently, 40 percent of Zions Bank’s 8,500 employees are enrolled in flexible spending accounts, way ahead of the average 15 percent participation among companies nationwide. About 1,200 employees use FSAs for child-care expenses, and 3,000 use them to pay for trips to the doctor or pharmaceutical meds.
Zions Bank uses debit cards from a company called MBI, based in Waltham, Massachusetts. MBI offered the first Flex Convenience debit card in partnership with MasterCard in 1998. These are limited-access cards that work only with pre-approved merchants, so, for example, an employee would not be able to use an FSA debit card at a restaurant. Two other companies, Evolution Benefits Inc. and SmartFlex LLC, also offer debit cards for benefits programs.
Companies are giving employees debit cards to access funds for flexible spending accounts, health reimbursement arrangements, transportation reimbursement plans and educational assistance programs. Currently, 350,000 employees use MBI’s cards--mostly for flexible spending accounts--but that number is expected to increase to more than a million by the first quarter of 2004.
Why the trend
Several forces are converging to create this projected increase in debit card usage. First, the IRS issued a ruling in May that officially sanctioned using debit cards for FSAs. Second, the IRS issued a ruling in September that allows employees to use funds from flexible spending accounts for over-the-counter medications. Third, the use of health reimbursement arrangements is increasing as conventional health plans become more expensive to fund.
Western Digital, a company that sells digital-storage products, is allowing its employees to use debit cards to purchase over-the-counter medications, in line with the IRS’s September ruling. "Given the fact that increasing numbers of prescription medications are going over-the-counter, employees using these medications are paying significantly higher out-of-pocket costs, frequently four or five times the amount that they paid as a prescription co-payment when these medications were covered under their health insurance plans," says Sandie Sekely, corporate benefits manager for Western Digital.
Of the 2,000 workers that Western Digital employs, about 22 percent participate in FSAs. The company saw an increase in FSA participation this year when it introduced the convenience of paying for health-care expenses with FSA debit cards, says Sekely. While employees will be able to use those cards to purchase over-the-counter medications, they will still have to turn in receipts for those medications later. The IRS rules dictate that there must be detailed receipts so employers and third-party administrators know that the employee was buying cough medicine and not shampoo.
MBI has come up with a way around this rule. Employees can purchase medications online, through a pharmacy called Familymeds, and don’t have to submit receipts because MBI can verify those transactions.
Health and transportation
Debit cards are also convenient for companies that have moved or are thinking of moving to a health reimbursement arrangement plan. Fletcher Thompson, an architectural, engineering and interior design firm in the Northeast, decided to switch to an HRA last February. Although HRAs can be structured in a number of ways, Fletcher Thompson chose an insurance plan with higher premiums to stabilize its costs. Co-pays for office visits increased from $15 to $30.
"We didn’t want to pass those increases directly to employees," says Susan Pellerin, Fletcher Thompson’s director of human resources, "so we gave them a specific amount of money to pay co-pays." For instance, the company gave Pellerin, a single employee, $600 on a debit card. At that rate, she could visit the doctor 20 times a year and still not pay a dime out-of-pocket. Similarly, "if employees don’t use it, the company doesn’t have to fund it," she says.
The debit cards work at hospitals, pharmacies and doctor’s offices. "Ninety percent of the time, MBI’s debit cards work well," says Pellerin, adding that there are some minor glitches, times when something might not get validated that should. Usually, these problems can be easily resolved by just sending in the receipt manually, she says.
Companies are finding that debit cards can help with transportation reimbursement plans. National-Louis University, based in Chicago, offers a transit program to employees, and so far about 49 of the 116 employees enrolled in its FSAs use debit cards to pay for bus or train fares.
Dow Jones also uses debit cards for its employee transit program. "We now have well-known household names using this product: the NFL, PGA Tour and WorldCom," says Victoria Nipple, the COO of MBI. "We have gone past the early-adopter stage," she says. "Companies are saying, if it’s good enough for Dow Jones, we should take a look at this."