Debit cards Future of Employee Benefits series

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Debit cardsFuture of Employee Benefits series
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Our Mission

• Easy to understand
• Easy to explain
• Easy to access
• Easy to use
• Easy to get your money back

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Debit Cards fit the Mission

• Easier to get the employees funds back
• Installed in 4 cases each one with low
  participation
• Nursing home 120 increase
• Hi-tech employer with high cost share of
  benefits 43 increase

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Traditional Method

• 1. Election made, payroll is deducted from
  employees paycheck
• Direct impact on family finances
• Employee seeks appropriate services
• Employee pays provider with after-tax money
• Employee completes and faxes claim form to
  eflexgroup
• Administrator manually reviews claim
• Claim is approved or denied based on eligibility
  or amount available
• 8. Reimbursement check or denial letter sent

8 Steps
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BUT, What about the IRS?

• Revenue Ruling 2003-43
• Section 125-2 Regulations requires claim
  substantiation
• This is a hard and fast rule
• Bottom line someone needs to look at the claim or
  a mechanism needs to exist to review all
  claims.just like insuranceremember?

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What is the industry lingo?

• Two ways to administer
• Our current standard all claims are reviewed
  100...all the time with random samplingbefore
  funds are released
• Pay and Chase Method
• Adjudicate after the fact (after the funds have
  been released)

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What does the IRS say?

• June of 2001 Harry Beker Chief Counsel in the
  IRS---Not speaking for the IRS of course!?
• Revenue Ruling 2003-43
• Next few slides
• Disclaimer
• Not taken out of context

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Question 1 Release of funds for inappropriate
claims
ecfc conference notes June 2001
Mr. Beker's main concern with electronic
adjudication of claims, or debit card method, is
the possibility that inappropriate charges could
get through the system. He went on to say that
over the past several months he has seen systems
that are "pretty good" and the programs seemed to
weed out inappropriate claims with a high degree
of accuracy. In fact, he felt that system
designers were heading toward some type of
program that would be pretty much on a par with
written certification and substantiation.
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In appropriate claimshow to handle?

• Regardless of 100 claim adjudication there is
  nothing that will prevent the human mind from
  beating the system
• Next is to design a system to handle this obstacle

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Mastercard/VISA

• Limit the merchant codes
• What is a merchant code?
• All vendors have a code
• MBI limits to 30 codes (write to us for a list)
• The problems occur when the employee goes to
  WALGREENS type pharmacies or dentist
• More laterback to Beker

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Beker continued
However, there are certain situations that give
Mr. Beker pause. A recent article in the Wall
Street Journal reported that a growing number of
spas are adding full-scale medical facilities.
That means that guests can get CAT scans between
seaweed wraps. The problem will be is whether or
not a lot of non-medical stuff is going to slip
through if someone goes to this medical spa and
simply swipes a card for all their expenses.
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Preventing the slip through

• Design software to match benefit payout
• Drug co pay scenario
• Require employees to submit all receipts?
• Require them to KEEP all receipts for random
  audits

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Our Card

• Has a contract that the employee must sign that
  states they will use the card appropriately (will
  send copy on request) by signing the back of the
  card and using it
• Still does not relieve employer liability for
  abuse
• Must have a system in place to audit catch and
  collect the dollars
• Employees elections become the card amount. i.e.
  2000 HFSA election card amount is 2000

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Beker and the system to collect
Another important issue arises when ineligible
expenses are paid out of a plan. Mr. Beker was
very clear that once a mistake is discovered, the
money must be returned to the plan from the plan
participant. The employer cannot simply treat it
as a taxable payment - that would blow up the
plan. Even in the event the plan year is closed,
the obligation is still there to recover the
ineligible reimbursement from the plan
participant.
Notice the employer liability?
Comment it can be put back into the plan however
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Our system

• Once the employee goes to the merchant code with
  limits on the card i.e. Walgreen's and charges
  more than their co pay for drugs these chain of
  events will happen
• Letter asking them to send in receipts within 15
  days or a warning
• No response? Another letter stating the card
  will be cut off in 10 days and send the money or
  receipts now!
• Then deduction from their paycheck

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How do other administrators handle?

• We are middle of the road and want to have the
  least impediment with best compliance---not easy
• Very legalistic require all receipts all the time
  even with card or only PBMs
• Some are very limited in scope
• New territory

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Beker
In fact Mr. Beker went on to imply that claim
adjudication is so important in the
administration of a cafeteria plan that if
unacceptable claims were consistently paid from a
plan, the ultimate penalty would be to disqualify
that plan. The employer would have additional
employment taxes and failure-to-withhold
penalties.
Cant get any clearer than that!!!
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The last of Beker
One additional question was asked concerning
claims adjudication. Would it be acceptable to
automatically pay all claims under 40 with only
the participant's statement that the expenses
have been incurred and they are valid? More
rigorous standards would apply to claims of
larger dollar amounts. Mr. Beker replied that the
Service has NEVER approved of that method.
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Debit Cards

• eFlex Convenience Card
• Pay instantly at point of service
• MasterCard technology
• Merchant codes
• IRS prior position
• IRS - Revenue Ruling 2003-43

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Enrollment

• Enrollment form
• Web enrollment
• Phone enrollment
• Communication materials
• Receipt submission

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Distribution

• 2 to 3 weeks
• Mailed to participants home
• Be on the lookout
• Spouse cards

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Using the Card

• Qualified vendors
• Receipts
• Plan co-pays
• Recurring claims

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Using the Card

• eFlex receipt request
• Postcard/e-mail
• Second request
• Shut off the card
• Recouping expenses

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Account Lookup

• Mbi website
• Eflexgroup link
• Self selected passcodes
• Account information

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Revenue Ruling 2003-43

• May 6, 2003
• IRS Guidance gives green light to debit cards for
  FSAs and HRAs
• Claims substantiation requirements must be
  satisfied for each claim (no sampling)
• Pays providers at point of service

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Rev. Rul. 2003-43

• Guidance under Prop. Reg. 1.125-2, Q/A-7(b)(5)
• Debit Card/Credit Card
• Administrators must have procedures for
  adequately substantiating each claim

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More Rev. Rul. 2003-43

• Participant Certification
• Only use card for appropriate medical expenses
• Printed on Card
• Participants must keep documentation
• Card balance limited
• Merchants restricted

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Contact

• www.eflexgroup.com
• 877-933-3539
• efgsales_at_eflexgroup.com