An easy way to pay

For the last few years, Oklahoma employees who set aside pre-tax earnings in flexible spending accounts (FSA) for medical expenses have been using debit cards that allow them to pay for prescriptions, co-pays and other medical expenses out of their FSAs. The electronic payment program replaced a paper-based claims system and has helped the state expand participation in the benefit program without adding administrative staff to service claims.

Before Oklahoma instituted the debit card program, approximately 20 percent of employees contributed money to FSAs. Each employee in the program submitted an average of five paper claims throughout the year for reimbursement from their accounts. Although Oklahoma’s Employee Benefits Council wanted to increase employee participation in FSAs, it faced the prospect of hiring additional staff to process a greater number of claims.

In 2006, the council contracted with Avon, Conn.-based Evolution Benefits to begin administering its Benny Prepaid Benefits Card, which is a special-purpose MasterCard that participants use at their pharmacy or doctor’s office. Purchases are validated through the company’s software, eliminating the need for employees to pay medical expenses out of pocket and then submit claims for reimbursement.

In addition to the debit cards, the council increased the maximum medical reimbursement limit from $3,600 to $4,200; began allowing a grace period for employees to use their previous year’s FSA funds through March 15 of the current year, reducing the risk of forfeiting unused money; and added an FSA calculator to help employees determine their possible tax savings from their FSA contributions.

After introducing those changes, enrollment in Oklahoma’s FSA program jumped 18.5 percent. Previously, enrollment in FSAs had increased at an average rate of 2.5 percent per year, and since the FSA changes, enrollment has increased an average of 3.5 percent annually. Total FSA contributions, now at $17.3 million annually, have been increasing 20 percent each year. And, as employees fund their FSAs through payroll deductions, the state saves money on Federal Insurance Contributions Act (FICA) taxes. Oklahoma’s FICA savings from FSAs have increased from $530,000 in 2005 to $1,320,000 in 2010.

In addition, Oklahoma’s Employee Benefits Council has reduced the number of paper claims for FSA funds while increasing the number of FSA transactions. In 2009, employees completed 217,000 FSA transactions — up from 57,000 in 2005 — but they submitted an average of only 1.7 paper claims each.

Project: Medical benefit flexible spending account cards
Jurisdiction: Oklahoma
Agency: Employee Benefits Council
Vendor: Avon, Conn.-based Evolution Benefits
Date began: 2006