HIPAA & Debit Cards

AVON, Conn. October 8, 2003 - Evolution Benefits Inc., the company that markets the Benny™ Card, announced today a positive result from its efforts to have the Centers for Medicare & Medicaid Services (CMS), a unit of the Department of Health & Human Services, exempt flexible spending account (FSA) debit card transactions from the HIPAA electronic data interchange (EDI) requirements.

In a letter to Evolution Benefits dated October 2, 2003, CMS stated, "After a thorough review of the situation, we have determined that a beneficiary's use of the FSA debit card for payment of out-of-pocket expenses at a pharmacy or provider's office that accepts MasterCard is comparable to a beneficiary's payment to a health care provider using a conventional credit card and that debit card transmissions are not subject to HIPAA EDI requirements. This is because it is considered a transaction between the beneficiary and a provider, not a health plan and provider."

Robert E. Patricelli, chairman and chief executive officer of Evolution Benefits, explained that, "Requiring administrators who use debit cards in connection with FSAs to comply with HIPPA EDI requirements would have added very substantial administrative complexity and cost to a process that debit cards were designed to simplify. We are grateful for the prompt and positive response we received from CMS on this issue."

Evolution Benefits took the initiative to secure a ruling on this issue from CMS because, according to Evolution Benefits general counsel Kitty Keane, "It was important for our clients, and their clients, that this regulatory cloud be removed before the new regulations became entirely effective. We prepared an extensive brief and met with CMS officials to point out that benefit card transactions such as these are completely different in nature from traditional claims transactions. To apply the HIPPA EDI rules would have required all administrators and card vendors to incur significant unnecessary expense without any resulting benefit to the consumer."

"We recognize that this ruling helps all debit card providers - not just Evolution Benefits - but we were happy to undertake this effort given its importance to the entire industry and to employers across the country," concluded Ms. Keane.

EDI Rules Don't Apply to FSA, HRA Electronic Transactions

HIPAA's electronic data interchange (EDI) requirements do not apply when a beneficiary uses a debit or credit card to pay for a reimbursable expense under a flexible spending account (FSA) or health reimbursement arrangement (HRA), the Centers for Medicare & Medicaid Services (CMS) said Oct. 6. The clarification was posted in the form of a question and answer on CMS' website & a beneficiary's use of an FSA's or HRA's debit or credit card for payment of out-of-pocket expenses at a pharmacy or provider's office, that routinely accepts traditional credit card payments, is comparable to any payment to a health care provider using a conventional credit card. "Debit and credit card transmissions for these transactions are not subject to the HIPAA EDI requirements, and are considered transactions between the beneficiary and a provider, not a health plan and a provider," it said. Complete text of Q&A, go to CMS' website, http://questions.cms.hhs.gov , choose HIPAA in the category field and enter the words "flexible spending account" in the search text field.

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