Health care reform is represented by the Patient Protection and Affordable Care Act, along with the Health Care and Education Reconciliation Act of 2010. While the legislation has been signed into law, there is still a great deal of work to be done to in terms of creating actual regulations, interpreting the language of the bills, and actually implementing the programs and changes. For health care and benefit programs that make use of debit or prepaid cards, the legislation has relatively minimal near-term impact.
One of the key programs utilizing Master Card cards is the Flexible Spending Account (FSA). Reform puts a new limit of $2,500 on the amount that an individual account holder can contribute to his/her FSA in order to be considered a qualified plan. This requirement covers plans with effective dates after 12/31/2012. While this is half of what employers generally set as a contribution limit, it should not materially change the amount that an individual account holder typically contributes—approximately $1,000 to $1,500 annually. in fact, in 2009, almost 97% of all FSA spending by individual Master Card FSA accounts was less than $2,500*. While it’s also true that certain over-the-counter items (without a prescription) cannot be funded out of an FSA, all of the typical purchases (e.g., copays, deductible amounts) will still be eligible.
There’s more good news resulting from reform legislation: Health Savings Accounts (HSA) remain virtually intact, preserving all of the advantages that these tax-favored programs have enjoyed for many years now. In fact, the only substantive change related to reform was an increase—from 10% to 20%—on the excise tax/penalty for use of HSA funds on ineligible, non-qualified health care purchases.
Those who have enrolled in these tax-advantaged programs may, in fact, end up benefiting from health care reform, given that much of the legislation puts the onus on employers and health insurers to expand their coverage, eliminate pre-existing conditions and generally absorb costs either in lost tax subsidies or anti-selection (taking on the risk of less healthy insureds). This may lead to employers passing more premium and coverage costs to the employee. If that happens, the attractiveness of high-deductible health plans will increase. Since HSAs go hand in hand with high-deductible plans, the value of having an account that’s funded tax-free and earns interest will become more important. Since FSAs are also used to pay for out-of- pocket expenses on a tax-advantaged basis, these higher costs/lower coverage levels will create more incentive for employees to open and use FSAs.
*Source: Internal MasterCard research conducted April 2010.
Cardholders, whether using FSAs or HSAs, will continue to take advantage of all the benefits that have made prepaid benefits cards attractive in the first place:
- • Not having to pay cash and wait to be reimbursed for out-of-pocket expenses
- • Being able to track expenses
- • Convenient access to funds
- • Broad provider/merchant acceptance
- • Control over how, if, when, and where health care dollars are spent
Because many of the legislative provisions do not take effect until 2013 and beyond, it’s difficult to tell what the ultimate impact will be. One thing is for sure now, though, and that’s the value that debit and prepaid benefits cards bring to today’s health care consumer. To learn more, please visit mastercard.com/healthcaresolutions.