My Flexible Spending Account Sent Me a Debit Card

January 10, 2008 by TFB

As if I don't have enough cards in my wallet, the vendor for my employer's health care Flexible Spending Account (FSA) sent me a MasterCard debit card. I'm supposed to use it for items eligible for reimbursement from the FSA.

The pitch from the FSA vendor is that I won't have to file reimbursement claims for items I charge to the debit card. But I'm still required to save every receipt. They can come back and challenge me for the eligibility of the purchase and I must then send them the receipt showing what exactly I bought with the card. Using the card is only going to complicate matters. Because the card is good only for FSA eligible expenses, if I buy a 12-pack of soda together with a prescription at a drug store, I must pay for the drugs with the FSA debit card and pay for the soda with cash or a different card. It's also only accepted at stores which installed a special computer system which distinguishes FSA eligible items from non-eligible items. If I charge the co-pay for a doctor's visit to the FSA debit card, and the insurance company later tells me I haven't met the annual deductible yet, I still have to file a paper claim to the FSA but I also have to explain to them that the co-pay is already reimbursed but the deductible isn't. What a mess.

I'm afraid this is just an attempt from the FSA vendor to capture the merchant fees from the purchase. The FSA debit card came with no PIN. All transactions must be processed as "credit."  If I use their card, I won't receive the 5% rebate from drug stores or the 1.5% rebate from elsewhere on my own credit card. Thanks, but no thanks. I cut up the FSA debit card without even activating it.

Related post: Why Banks Push Debit Cards

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Comments

17 Comments on My Flexible Spending Account Sent Me a Debit Card

  1. new guy on January 10, 2008 | permalink
    2.  

    I'm an FSA nut. Until I read your post, I thought FSA debit cards would be a time-saver's dream. What a logistical nightmare. I think you totally did the right thing cutting them up.

    My FSA provider provides electronic filing of claims AND direct deposit. It's definitely the way to go. I've got a post about it on my blog.

  2. indexfundfan on January 10, 2008 | permalink
    3.  

    My provider also requires me to send in receipts too. So there is no advantage in using the card.

    I prefer to either use the Fidelity 529 card and receive cashback of 2% or the Chase Cash Plus that rebates me 5% when I shop at pharmacies.

  3. deltaforce on January 10, 2008 | permalink
    4.  

    Excellent thoughts on this subject. It seems everything we do in life is a constant fight to retain every nickel we can muster.

  4. Ted on January 11, 2008 | permalink
    5.  

    I don't think the FSA company can/will come back and challenge your purchases. The IRS can/will, however. Then again maybe I'm wrong because the FSA has incentive to deny charges since they keep any money left over.

    Also, FYI: I have an HSA card (different entity I know) and ran into the same scenario at the drug store. I was buying some kiddie cough medicine (covered) and toothpaste (not). The system automatically recognized what was covered and what wasn't. I had to hand over another form of payment for the toothpaste.

    Having had both an FSA (previous job) and HSA (now), I much prefer the HSA. The recordkeeping and documentation is less rigorous, access to your money is less restricted, the tax benefits are unbeatable, and there is no risk of losing your money for not spending it.

  5. TFB on January 11, 2008 | permalink
    6.  

    Ted,

    This is what they said on the instructions which came with the FSA debit card:

    "Remember to keep your receipts from every card transaction, because you may later be notified that you're required to send receipts or other documentation. Failure to send receipts will have an impact on your ability to use your card."

  6. dsowa on January 14, 2008 | permalink
    7.  

    I've never used a FSA. Unless you have a fixed expense the time and hassle of using the account along with the possibility of losing the remaining money at the end of the year has always made it seem like a bad deal.

  7. newguy on January 15, 2008 | permalink
    8.  

    dsowa:
    Lemme guess – you aren't married and you don't have kids. I once thought the same as you. As a father of two – I don't have that luxury. It's *not* a bad deal *if* you know what you are doing. I use quicken to track my medical expenses so i have a pretty good idea of what my expenses will be. Also – my provider gives a 3 month grace period.

  8. sbz on February 19, 2008 | permalink
    9.  

    I am not sure what an HSA account is, but I am grateful for my flex spending account because two of our five children have a prescription expense every month. It is comforting to know that we always have the money to get it instead of worrying. I know it sounds like poor planning and that could sometimes be part of it but with seven people in our family, it gets rough sometimes.

  9. TFB on February 20, 2008 | permalink
    10.  

    sbz – HSA is Health Savings Account. You can have it only if you have a high deductible health plan ($1,000+ for individual coverage; $2,000+ for family coverage). The way you are using your FSA is exactly what it's intended. In addition to helping you budget, when you use a FSA to pay for prescription expenses you also save on taxes (federal, state, Social Security and Medicare).

  10. Anonymous on April 8, 2008 | permalink
    11.  

    FSA is a great tool to save money no doubt. I have used one for several years but just changed to a company that uses the debit card. It's a nightmare. Not only are the issues you relate valid, but my FSA provider challenges doctor appointments or anything that is not on a pre-certified list. I have had to substantiate everything except prescriptions from Walmart. And they have now asked for paperwork for an $8 purchase to be sent twice! Whoever said the providers won't challenge most things is wrong. The old system was difficult but this takes the cake. You need a full-time secretary to get your own money back!

  11. Brent on July 15, 2008 | permalink
    12.  

    summary of the issue. This "Benny" card is marketed by my comp[any's HR team as the end all be all of cards. I only found out recently that I can only use it for prescriptions and not doctor's office fees!

  12. Simon on September 27, 2008 | permalink
    13.  

    While many people here have had bad experiences with FSA accounts, I am very surprised by the few who think it has benefitted them. I have a family of four so our medical expenses are fairly substantial and I put in for the full $5000. However I have now discoved that FSA plans are one of the larger frauds imposed on the american public by the IRS and the plan administrators. They benefit, we lose.

    Consider this:

    1. The IRS is effectively privatizing their audit, with the plan administrators getting 100% of any forfeited amounts. Believe me, in my case they stopped at nothing to ensure funds were forfeited.

    They paid amounts used by the debit card, leaving me to believe I had spent the full amount. Then in late august 2008 they said they needed validation of almost all expenses for 2007, going back 18 months. They could have asked for receipts earlier, but of course they wanted to make it as hard as possible for me to comply by the deadline of September 28th.

    Although I am good at keeping receipts, most medical providers did not provide acceptable receipts, simply charging the debit card. We spent hours contacting the providers, with mostly full co-operation but some were just not able to give the information the FSA administrator would accept.

    Even though we had receipts for expenses well in excess of the $5,000, the administrators would not accept receipts that were not in the original claim for $5,000. I.e. if getting all the required documentation for one expense was proving problematic, we could not replace it with another expense.

    2. Official figures show that only 4% of funds are forfeited. However, consided this. If funds are forfeited, you lose not only the funds but you then have to pay taxes on the forfeited funds (see Wikipedia entry on FSA for an explanation of this). Therefore people go to extraordinary lengths to use up the funds, even if it means buying glasses you don't need and throwing the glasses away. If you buy glasses and throw them away then you still lose the money but you no longer have to pay taxes on the money. When the cost of this sort of stuff is added to the 4% the forfeit amount will almost certainly exceed the 15% tax bracket and probably the 25% bracket that most of us pay.

    3. If you love being audited then the FSA is for you. You will certainly recieve a very aggresive audit by your plan administrator.

    4. Never consider the dependent care FSA. The paperwork involved in claiming back the money is horrendous. You will have to obtain an employee identification number and complete all sorts of tax forms each time you pay a baby-sitter. It will take almost as long to process these forms as the amount of time the baby-sitter spent baby sitting. The taxes and social security that you will have to pay will exceed any of the supposed tax savings gained from the FSA. You will also be substantially increase the chances that you will be audited by the IRS.

    We have learned the hard way not to touch these FSA plans.

  13. klaus on November 17, 2008 | permalink
    14.  

    I found that using the card actually made using the FSA much more streamlined anyway. I would save my receipts whether or not I had the card (for tax/audit reasons). I have had to send in the receipts to justify my purchase, and it has been a breeze. Just a quick fax with my signature has made this a godsend compared to FSA accounts I have had in the past.

    I put aside a small amount this year $650, and have only $1.57 left in the account. I feel it was worth the minor effort I had to put forth. Now on to next year, I need to figure out how much to put aside since we have a baby coming along!

  14. kme on December 9, 2008 | permalink
    15.  

    Just yesterday I found out that my FSA had an issue with three transactions from Feb 2008. They claim they sent three letters to notify me, but I did not receive any. They didn't even to bother to call when they didn't get a response from the letters they supposedly sent.

    After hearing from one of my staff last month that his FSA was locked up for a purchase in May, I decided to check mine. Sure enough, mine was locked up for two drug store and one dentist transactions in FEBRUARY. I then had to locate the two receipts from Feb and call my dental insurance to get a statement of benefits that shows what was not covered (like I would make up going to the dentist..it's just so much fun to get a root canal.) I don't understand why they needed the dentist records since the charge was put thru at their offices…would I really have paid them over $350 if I didn't have to?

    I will never sign up for an FSA again. I am not 12 and know the rules of using the account. The paperwork is just not worth the tax benefit.

  15. Jlb on January 23, 2009 | permalink
    16.  

    I have a FSA account and have been using the debit card since last year. There isn't anything extra to do because I was already keeping the receipts from my purchases anyway. They've only asked for one receipt and that was when I purchased glasses for both my daughter and myself. It really works well for me because sometimes when my daughter gets sick I don't always have the cash to pay for prescriptions and OTC medicines, now I just use the card.

  16. Brent on June 16, 2009 | permalink
    17.  

    I'm hoping that as of June 2009, this post is extremely outdated. The FSA debit cards have been in use for QUITE some time, and it is very much a timesaver and certainly streamlined with online solutions.

    The idea that saving receipts is a pain is ridiculous. I would save these anyway, as the FSA company (the Third-Party Administrator [TPA]) is in no way responsible for questioning expenses- it ALL falls under the strict IRS regulations, the FSA company is simply the messengar and the "Administrator" (the "A" in "TPA") of the program.

    I've had an FSA for over five years now, and have only had expenses questioned for which I can count on one hand. Each time it meant a quick fax or even email with a PDF scan and it was taken care of. The systems flag unusual expenses with strange totals if you suddenly have a new prescription, etc. Any forfeited amounts that the companies or IRS seem to be gaining (mentioned in these posts) is simply due to people's inability to project expenses accurately.

    ANY doctor's fees or prescriptions most certainly fall under the FSA (split into HCRA (HealthCare) and DCRA (Dependent Care [i.e. daycare]) accounts. ANYTHING THAT IS USED TO TREAT A SYMPTOM (As a rule of thumb) is eligible. So, nothing like vitamins or supplements, or big-screen televisions will fly (nothing preventative).

    The FSA allows you to use pre-tax dollars to pay for co-pays and OTC medicine, etc. If you dont' use the card, you have to pay out of pocket, and then submit for reimbursement. If you want to squabble about 2% bonuses/dicsounts on using your own credit card, the pre-tax benefits far outweigh that, as you are then double-dipping: you're taxed on your paycheck, then you're paying tax again on those purchases… and, if you are like most Americans, that credit card debt will not be paid off immediately… meaning you're paying interest. Not a good scenario.

  17. Greg Patrick on June 29, 2009 | permalink
    18.  

    FSA debit could be decline beginning July 1, 2009. For merchant, you can refuse to take the FSA or health benefit card, dispute of what you might have been told. Irs now requires those issuing the card, to allow reimbursement of the charges for merchant who only take cash or who dont take the card. Just submit the receipt like you would normal do.

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