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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Debit card problems in health plan

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: You wrote: "The use of debit cards sounds appealing, but frequently leads to problems with withdrawals by health care providers, so these should be avoided". Please give examples of problems with debit-card withdrawals by health care providers.

A: Other publications from a wide range of sources detail the problems associated with the use debit cards in health plans, including HSAs. There are problems reported by both employers running the health plans and employees using the cards. Yet debit cards continue to be a feature in health plans today. A small business owner who is in a position to avoid the use of debit cards will save the business and the employees substantial amount of money over the long term. The three most common complaints among consumers who use debit cards are: 1) Unauthorized charges. For example, a patient misses a weekly chiropractic appointment and the provider charges the debit card on file anyway. 2) Overdraft fees. Since these accounts tend to have smaller balances anyway, overdraft fees of $30 or more per incident are common when using debit cards. For example, if an account has a balance of $500 when a mother takes her kids to the dentist and meanwhile, the husband fills a prescription and charges his weekly visit to the chiropractor. Even if each of those individual health charges was below $500, the total would overdraw the account. 3) No provider discounts. Most health plans benefit from discount pricing arranged by Preferred Provider Organizations (PPO) and available to individual health care consumers through discount lards like those at . But those who pay by debit card lose the discount pricing advantage and wind up paying the highest prices for their health care. It is important to submit bills to the PPO for re-pricing first, then make payment to the provider. There are also risks and additional costs for the employer when debit cards are used in employer-sponsored health plans. The IRS assumes that the charges on the cards are untaxed wages subject to penalties unless the employer can provide third party documentation showing that the money was tax-qualified health care expenses. Most small businesses have this report prepared at year-end, but businesses that use debit cards require more frequent claims administration, thereby increasing the employer's overhead costs. If a charge turns out to be not a qualified expense, the employer owes wage taxes and possible penalty on the money paid through the debit card. This additional cost can add up to more than 55% of the amount paid through the debit card. Whenever possible, it makes sense for a health plan to verify the claim first, then disburse funds.


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