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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new guy says
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.
indexfundfan says
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.
deltaforce says
Excellent thoughts on this subject. It seems everything we do in life is a constant fight to retain every nickel we can muster.
Ted says
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.
Harry Sit says
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.”
dsowa says
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.
newguy says
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.
sbz says
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.
Harry Sit says
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).
Anonymous says
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!
Brent says
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!
Simon says
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.
klaus says
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!
kme says
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.
Jlb says
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.
Brent says
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.
Greg Patrick says
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.
FSA says
Simon- I’m not sure who your FSA provider is, but that doesn’t sound at all like the experience I have had with mine with either company i have had one through! Maybe it is just the provider being a pain- not an FSA in general.
I think it is definitely worth it to save hundreds of dollars in taxes to send in a few receipts. My provider has direct deposit and also automatic reimbursement with our medical plan, so it works out pretty well!
Any money leftover at the end of the year is forfeited, but you can always spend that on Tylenol, Dayquil, etc. through the end of this year (no OTC in 2011) so it’s not like you would be throwing money away.
I agree in future years it may be harder to estimate how much you will need, but even if you lowball it so you don’t wind up with excess funds- at least you will realize some tax savings!
J says
Can you put your health insurance premium payment in the FSA? – and if you can, can you have direct deposit of your premium payment put in the FSA?
Harry Sit says
J – No, you can’t pay health insurance premium with FSA.
Judy Hornwick says
I guess I set up my medical FSA to be automatically reimbursed to providers and pharmacies. The problem is money’s were paid out of my FSA that I did not owe. In addition, my son has secondary insurance. The entire $3000 was spent on bills we did not owe. Cigna is telling me that you can not change the option of automatic reimbursement although I have been calling them since January.
They are trying to tell me it is Federal Laws that stops me from sending in my reimbursements requests. They state that once auto reimburse, I can not change.
Please let me kow if I have any recourse.
Harry Sit says
Judy – If the providers received too much, you need to get them to return the excess to the FSA.
D says
FSA Mgmt companies have a poor business model which does not work, avoid FSA card at all costs.. there is nothing flexable about it and slim chance that it will save you tax dollars. Usually the employers do not know this until enough employees complain then the dump the FSA offering the following year.
I wanted to post the exact email and snailmail that FSA Mgmt companies spam long after EVERY SINGLE FSA CARD PURCHASE in case anyone else gets this same scam email:
…
Dear Participant:
Thank you for using the Health Care Account Debit Card for your recent FSA purchase. Although we have IRS accepted methods in place to automatically verify the eligibility of your FSA Debit Card purchase, electronic verification has not been successful for this transaction. As a result, the IRS requires that you submit an itemized receipt to certify the eligibility of the indicated expense.
Our records indicate that we have not yet received your substantiating documentation for the FSA Debit Card transaction listed. This is our X attempt to request verification of your purchase. Please note that failure to verify your transaction(s) within twenty (20) days may result in a temporary interruption in debit card service.
To verify the eligibility of this purchase, please complete a Substantiation Form and submit the form to along with your eligible receipts with the following guidelines:
1. Amount paid for the purchase.
2. Date and Type of service.
3. Merchant/Provider’s name as listed in the Description above.
4. Credit card receipts and cancelled checks are not valid forms of documentation, as they do not show the service provided.
…
5. [Once you have done steps 1-4, stand on 1 leg for 6 hours during a full moon and send in video as proof to to complete your FSA Card audit]
P.S. I added step #5 for humor purposes
Keith says
My wife gets a benny card through her work. Last year she seen a acupuncture, few months later was told her insurance won’t cover. Since then our Benny card has not let us use it because we cannot get the information they want from the acupuncture, no matter how many times we tried to call this place we still cannot get the information that the Benny card wants they just won’t give it to us. Both me and my wife have health issues and because we cannot use the Benny card we have not been to the doctor or been able to get our medication in over year. Need some help and just don’t know where to go. Every extra penny of our money goes in to this Benny card
Steve says
So, let me see if I understand this correctly. The insurance company basically sets up a savings account in your name, issues a debit card in your name, that you can only use for certain purchases? I have an HSA card thru my insurance provider and it seems this is the case. I have tried to purchase items such as Mucinex thru the pharmacy with this card and was unable. I was told however, that I can pay for the Mucinex out of my own pocket, then go to an ATM and retrieve my money back that way…..ummmm, am I missing something here?? Isn’t it MY money to begin with?? Why can’t I spend it how I wish? (I know, the HSA is only supposed to be used for medical expenses) May as well just set up my own savings account, then I could actually draw interest on the balance anyways!
Harry Sit says
OTC drugs aren’t eligible expenses for HSA unless you have a prescription. That’s why you couldn’t buy it with the card. Taking out cash to reimburse yourself for this ineligible expense would be illegal too (you pay a tax penalty). You don’t pay tax on HSA money. That’s why it’s restricted. You spend your own money how you wish only if you pay tax on it.