The Health Spending Benefits Guide to Stacked Cards

If your organization offers clients health savings accounts (HSAs), you likely also offer flexible spending accounts (FSAs). Probably health reimbursement arrangements (HRAs) and commuter benefits, too.  And you've definitely talked to your team about offering lifestyle spending accounts (LSAs). 

Issuing one card for every offered health spending benefit quickly leads to increased expenses and operational inefficiencies. But what if you could stack all benefits on one physical or virtual card? With "one benefits card to rule them all," cardholders have one access point for all health expense funds. In this guide, we'll show you how.

Benefits of stacked cards 

Stacked cards benefit partners, organizations, and members by increasing utilization, improving economics, reducing waste, and making clients happier. 

Why stacked cards matter to cardholders

With one card for every health spending benefit, members have fewer cards to carry and remember. This simplifies the member experience, lightens purses and wallets, and results in fewer “I forgot my FSA card!” moments at the register.  

Why stacked cards matter to partners

Stacked cards provide partners with increased revenue, reduced costs, reduced waste, and happier customers. 

• Increase revenue with improved card utilization. Bringing a single card to the store or medical office is easier to remember, making it more likely that cardholders will keep track and use their card. And with increased card utilization, partners enjoy an increased amount of interchange fees and improved data.
• Reduce card production costs. Printing custom physical payment cards that feature your organization’s logo and branding can cost up to $5 per card. By stacking benefits, partners only need to issue one card for every member they serve. 
• Reduce plastic waste. NatWest research estimates more than 76 million plastic cards landed in UK landfills within a five-year period. That’s a striking number of cards, especially when you consider that one card can take a hundred years to decompose, A stacked card helps reduce this impact on the environment. 
• Lead the industry by adopting tech-forward principles. In May, Visa announced that American banks can issue payment cards linked to multiple bank accounts, eliminating the need to issue a separate card for debit, credit, and/or prepaid accounts. Sound familiar? 

Card transactions 101

To design and offer a stacked card solution for health spending benefits, you'll need a basic understanding of how cards work. Here's a (very) brief overview of card transactions. 

Issuer and acquirer

When you swipe a card at checkout, more than pleasantries are exchanged—an entirely separate conversation occurs on the card network between two other parties.

• Issuer: The bank or lender who issued the cardholder a card and is responsible for sending funds. 
• Acquirer: The merchant's bank that is trying to acquire the funds and is responsible for receiving funds. 

Issuing and acquiring processors

Most issuers and acquirers assign intermediaries to act on their behalf who are called processors because they process transactions.

• The issuing processor is on the issuing side.
• The acquiring processor is on the acquiring side.

Three card authorization questions

When you swipe a stacked card, the issuing processor has a couple of milliseconds to answer three main questions: Are there sufficient funds? Is this an eligible purchase? What’s the withdrawal order?

Cards and health spending benefits 

FSA, HRA, HSA, and LSA benefit programs do not fit neatly into the same box. Many health spending benefits offer tax advantages, some require members to submit receipts to access funds, and some are not compatible with others.

A great stacked card solution solves all of these complexities with behind-the-scenes technology so cardholders enjoy a simplified, intuitive experience.

Eligible expenses and cards

Health spending benefit programs provide funds for designated member needs, whether it's a wellness benefit program for gym membership fees or an HSA for qualified medical expenses. There are four general categories:

• Commuter transit programs where employer plan sponsors determine eligible expenses based on IRS Section 132(f).
• FSAs and HRAs where employer plan sponsors determine eligible expenses based on IRS Section 213(d). 
• HSAs where the IRS determines qualified medical expenses with IRS Section 213(d).
• LSA programs where benefit plan designers define eligible expenses.

Inventory Information Approval System (IIAS)

The IIAS is the industry standard that merchants implement in their POS systems to verify whether items purchased are eligible medical expenses as described in Section 213(d) of the Internal Revenue Code. In three steps, the IIAS compares scanned products with a pre-established list of eligible medical products, transmits the total of eligible medical expenses to the payment card issuer for approval, and then debits the appropriate account upon approval. IIAS tells issuers what amount of a particular purchase is eligible under the IRS standards.

90% merchant rule

If 90% or more of a store’s gross sales are for eligible products as described in Section 213(d) of the Internal Revenue Code., a merchant can apply to accept FSA and HRA cards under the 90% Merchant Rule. This rule typically applies to drug stores and pharmacies. Merchants under the 90% rule do not implement IIAS, so post-purchase substantiation is needed.

Merchant category codes (MCC)

Payment processors classify merchants with merchant category codes (MCCs). Here are some examples of healthcare provider MCCs that can be used to identify eligible expenses:

• 8011: Doctors and Physicians
• 8021: Dentists, Orthodontists
• 8042: Optometrists, Ophthalmologists
• 5047: Medical, Dental, Ophthalmic, and Hospital Equipment and Supplies

Benefit plan designers can also use MCCs to design specific LSA programs. Creating an LSA for golf? Consider leveraging MCC 7997 “Membership Clubs (Sports, Recreation, Athletic), Country Clubs, and Private Golf Courses.”

Retailer SKUs

Implementing a consumer-friendly solution that verifies eligible expenses on the product level is very difficult. Standard messaging formats for payment processing are tightly structured and leave little room for merchants to pass a string of SKUs in the message they send to the acquirer. This is why SIGIS created the IIAS standard for healthcare eligibility.

Absent a network-wide solution, platform technology providers can create custom arrangements with merchants (e.g., a major retailer). This clunky model is both difficult to maintain and prone to consumer confusion.

Substantiation and cards

To access HRA and FSA funds, members must first demonstrate to program administrators that they have an eligible expense. (This is not true for HSAs.) The claims process looks something like this:

1. Members pay with their funds
2. Member submits a claim with the receipt
3. Administrator reviews claim
4. Member is reimbursed (if the claim is approved)

A properly designed card program can help simplify this process.

Auto-adjudication

Auto-adjudication is an automated process that verifies purchases are FSA or HRA-eligible expenses at the point of sale (POS). With auto-substantiation, no receipt submission or receipt review is required. There are several key ways to leverage auto-adjudication:

• IIAS. Any purchase made with IIAS is auto-adjudicated.‍
• In-app purchases. Linking directly in the platform to merchants leveraging auto-adjudication helps members gain easy access to FSA and HSA-eligible products.‍
• Recurring payments. After the first claim is adjudicated, recurring payments can be auto-adjudicated.‍
• Copays. FSA and HRA providers may match standard copay amounts for an employee’s health plan. This is called “copay matching” under IRS Notice 2006-69.

Pay and chase

For purchases made outside of auto-adjudication systems, program administrators must establish “pay-and-chase” programs that require members to submit proof of an eligible expense (receipts). If an expense is determined not to be eligible for reimbursement, the member repays the funds to the plan.

Proper guardrails and easy mobile receipt uploads

With proper guardrails, card program administrators help limit ineligible purchases. By offering an easy mobile interface for uploading receipts, administrators can enable members to quickly make their claims before they even leave the store.

HSA program compatibility and cards

An HSA is a great tax-advantaged resource designed for medical expenses. To ensure appropriate use of tax-qualified funds, the IRS limits HSA eligibility by requiring HDHP coverage and prohibiting the pairing of an HSA with any plan (i.e., FSA, HRA) also designed for medical expenses. This limitation must be taken into account when designing stacked cards with HSAs.

A note on limited-purpose FSAs and HRAs

Limited-purpose FSAs and HRAs can take various forms, depending on the eligible expenses selected by employer plan sponsors. Below are some common arrangements. 

• Dental & Vision FSAs and HRAs. These programs are typically designed to be compatible with HSAs. 
• Fertility and Mental Health HRAs. These programs are designed to address population health needs and are not usually compatible with HSAs.

Withdrawal order and cards

Josh's stacked card features both an HSA and LP-FSA. If Josh purchases contact lenses, which account should be debited first in this transaction? This is the question of withdrawal order.

IRS ordering rule for HRAs and health FSAs

The IRS provides guidance regarding situations where coverage is provided by an HRA and a § 125 health FSA for the same medical care expenses. 

When expenses are eligible for both HRAs and health FSAs (i.e., not Dependent Care FSAs), HRA funds should be withdrawn first. If the plan sponsor wishes to change this order, the plan should be formally amended.

Preserve HSA funds

We highly recommend that partners prioritize consumers by protecting HSA funds. In contrast to all other types of health spending benefit programs, account holders own their HSA funds—they cannot be lost due to plan year expiration or an employment change. For this reason, we consider it a consumer-first practice to debit HSA funds last.

Stacked cards FAQ

Here are some questions frequently asked about First Dollar’s stacked card solution.

• Can a stacked card be digital-first? Yes. First Dollar has a stacked card solution that can be offered virtual first and on all digital wallets (Apple Pay and Google Pay).
• Can an LSA program be “stacked” on a card? Yes. An LSA program can be stacked on a debit card with all other health spending benefits.

Consider stacked cards

By leveraging stacked cards for your health spending benefits, you can solve operational inefficiencies, reduce costs, and offer a product that your members will love to use.