John Mayleben Blog

What’s a ‘benefits card?’

by ... Bob Negen David Coleman Dianna Stampfler Ed Borowsky Elissa Hillary James P. Hallan Jennifer Cherry John Mayleben Ken Seawell Scott Watkins Steve Flaster Tom Borg Tom Scott

Many consumers now carry “benefits cards” in their wallets and may try to use them for payment in your store if they have not already. These cards look like either Visa or MasterCard debit cards, but will only work for the purchase of health-related goods or services—and sometimes not even then.

The cards are part of some individual or group health insurance programs and are tied to either a Healthcare Savings Account (HSA) or a Flexible Spending Account (FSA). A benefits card might be used for a copay at a doctor’s office, new glasses at an optometrist or a medical product (prescription or over-the counter) at a drug store or convenience store.

Using the benefits card makes it easier for the customer to pay for a qualified medical expense using one of these healthcare accounts. Previously, this would require paying for it directly, submitting a claim with a receipt to a benefits manager and waiting for reimbursement.

If you are not already set up to accept benefits cards, transactions using them may be declined, and you will have to ask for another form of payment. You may even have processed transactions with these cards with no problem in the past, but no longer. Here’s what’s happening.

When you set up your merchant account with either MRA or someone else, you were assigned a Merchant Classification Code (MCC) that tells Visa and MasterCard what type of business you operate. Some MCCs, such as pharmacies and medical providers, are automatically set up to accept benefits cards.

Many other businesses, however, also sell goods or services that are eligible to be paid for with a benefits card—cold remedies, eye care products, physical therapy, to name a few.

Effective January 1, 2008, however, these other businesses need to change the way transactions are processed if they want to be able to accept benefits cards. Unfortunately, due to legal hoops involving the IRS, this change will require a fairly sophisticated Point of Sale (POS) cash register system to handle the new process, called auto-substantiation.

Merchants who don’t sell many health-related goods or services are likely to find this upgrade much too costly. If you already have a POS system and want to make these changes or learn more about this option, contact Michigan Retailers Association at 800.366.3699.

For those of you in the pharmacy industry: get ready, your turn is coming. Your systems will have to be upgraded by January 1, 2009.

John Mayleben is Michigan Retailers Association senior vice president, technology and product development, and a national expert on electronic payment processing.

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