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Creative Benefits provides impartial, confidential benefits administration to over 700 clients. Approximately 90,000 participants are currently served by Creative Benefits.
Our employees reflect the highest standards of integrity and ability and are committed to serving you. That’s the assurance you need when choosing an appropriate administrator for your plan.
Our goal is simple: to develop long-standing relationships with employers who are delighted with our expertise and administrative capacity. We will make sure you and your employees are pleased with our services.
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CB News Briefs
Payment Cards/Debit Cards...
Plastic! The buzzword of 2003! You gotta have it! The idea of using a “debit card” or “stored value payment card” for Flexible Spending Accounts is not new. They have been around for at least the last 5 or 6 years. In fact, Creative Benefits has been involved with payment cards in some capacity for nearly that long. Years ago, we participated in an early focus group with mbi, the card company that claims “front-runner” position in the industry. We have offered the SmartFlex™ payment card since April of 2002, and are currently reviewing protocols to add additional cards that clients have requested.
So, what is a payment card? These cards draw from the cardholder's personal FSA balance, not a general bank balance (that's why it's a "stored-value card," and not really a debit card.) So, how do they work?
• Wherever the employee has an eligible expense -- at the pharmacy or at the doctor's office -- he or she merely has the clerk swipe the Payment Card through the credit card machine, and that's it. The employee simply completes a claim form when they get home and faxes the documentation to Creative Benefits. No cash up front.
• Where the health plan has a deductible or coinsurance feature and the employee gets a statement that points to an amount still owing to the provider, the employee writes his or her Payment Card number on the bill and sends it back in payment to the provider. That's it!
So, for employees, it's convenient, easy to understand and easy to use. Why offer a payment card?
• Employees often cite cash flow as a reason not to participate in FSA plans. The payment card eliminates the cash flow problem.
• Employees love it!
• The additional cost of the card is typically offset or eliminated because the presence of the card encourages additional participation and higher elections—employers typically realize savings of 10% of the employees election.
What about receipts? I’ve heard that when you use a payment card you eliminate paper? How we wish that were so! The IRS released a Revenue Ruling (2003-43) that addressed the use of payment cards with Health Care Spending Accounts. In this ruling (see the June Special Issue of Benefit Bits at www.creativebenefits.com), the IRS outlined guidance for appropriate use of debit cards, including possible methods of electronic substantiation and correction methodologies for improper use of the card.
The potential for electronic substantiation of card transactions is very exciting. Essentially, we are exploring relationships with vendors who have built interfaces with Pharmacy Benefit Managers (PBMs) to transmit data regarding Rx copayments to the card vendor, who will then match those against eligible card transactions. Here’s theoretically how it works:
Imagine the following circumstances: I swipe my card at the local drugstore for $36. The card vendor receives PBM data indicating that, over the last 10 days I had prescriptions filled for eligible family members in amounts totaling $32.
The card vendors offer a couple of alternatives:
• In the case of “real-time” substantiation the above card transaction would be declined because it must exactly match the PBM data.
• In the case of “retrospective review,” the card transaction would be approved and the participant would receive a letter indicating that $32 of the transaction had been substantiated, while $4 had been denied, pending additional information.
Other card vendors have created interfaces that allow administrators to indicate various copayments by type of service, type of plan and individual. Thus, if I have $10, $20 and $30 copayments for prescriptions, I can “automatically substantiate” any drug store card transaction that matches the $10, $20 and $30 amounts. The IRS has indicated that combinations of multiples cannot be “automatically substantiated” under this approach.
The down-side of the Ruling, however, was the announcement that the IRS viewed the transaction as occurring between the plan and the provider, and thus subject to a 1099 reporting requirement for aggregate plan payments made in excess of $600 to a single provider. As we reported in a recent notice, the Centers for Medicare and Medicaid Services (CMS) recently issued guidance for HIPAA compliance that is somewhat contrary to the IRS-applied premise that Form 1099 reporting was required (Rev. Rul. 2003-43). (That is, CMS is viewing debit card transactions as between the consumer and the provider, while the IRS holds the transaction is between the plan and the provider). We are hopeful that IRS and Treasury will re-evaluate their position in light of this guidance from CMS. We continue to hear that additional guidance addressing the 1099 issue “will be issued soon,” however, it has not, as of this writing, been released. Supporting this is the fact that the Treasury Department has released at least two letters indicating that it is reconsidering the issue of whether Form 1099 reporting is required for debit/credit card payments to health care providers under health FSAs and HRAs. The letters are virtually identical and respond to letters to Treasury expressing concern about Form 1099 reporting for health FSA and HRA debit/credit cards. In the letters, Treasury says it recognizes that many companies sponsoring such cards did not anticipate that making the payments directly to providers would result in the application of the reporting requirements. The letters also indicate that Treasury is aware that employers are likely to be unable to satisfy the Form 1099 reporting requirements at this time because they generally do not have access to (and will not be provided with) provider taxpayer identification numbers. The letters go on to state that Treasury is reviewing "whether the reporting requirement is appropriate under existing law the appropriateness of applying any reporting requirements on a prospective basis." According to the letters, Treasury is also considering "the need for, barring any legislative change or alternative resolution, any transitional period to allow system modifications to collect the information required to satisfy existing requirements."
What’s our position? The landscape continues to change frequently. IRS released Revenue Rulings 58 and 102 clarify (change, really) that supplies and over-the-counter drugs are eligible expenses under a Health Care Flexible Spending Account or Health Reimbursement Arrangement. This may lessen the appeal of “real-time” auto-substantiation because cards will be declined anytime an OTC item is purchased. Retrospective review may reduce paperwork for the employee, but the added cost of following up for receipts in the cases where we are not able to fully substantiate the transaction with PBM data could mean increased administration costs for our clients.
At this point, we have communicated that all transactions need to be substantiated. We get compliance about 78% of the time. We wonder if the added complexity of employees needing to decide when they need to submit documentation will increase our “pay and chase.”
We are, however, committed to exploring and thoroughly testing the new technologies as they come along. We believe the card is a viable option for employers and fully support this technology. Were it not for the 1099 reporting issue, we’d be enthusiastically pushing its implementation. It’s still good, but employers need to consider the added complexity of the 1099 reporting issue that is presently a difficulty. Once that issue is delayed or eliminated, the card presents a huge convenience for employees that should be offered by every employer.
For more information
For more information on our services, call us toll-free at 888-295-5959 extension 221 or e-mail Solutions.
To request a proposal, call our toll-free number 1-888-295-5959 extension 221 or e-mail Proposal.