In a new report, Flexible Spending
Accounts, Flexible Cards, Celent explores how debit cards for flexible
spending accounts (FSAs) are transforming the flexible spending account
market. Adoption of FSAs has been stymied by logistics, bureaucratic red
tape, and regulation. But thanks to recent regulation that paved the way
for FSA cards, the industry is no longer stilted by the inefficiencies of
the previously paper based system.
Before FSA cards employees effectively paid
for FSA-qualified services or goods twice. First, money was taken out of
their paycheck and then they had to pay again at the point of purchase.
The main road block was there was no way to take money directly from their
FSA account when paying for the good or service. But FSA debit cards
address this issue and decrease many of the other burdens associated with
FSA accounts.
"FSA cards are beginning to revive the FSA
market and draw positive attention from employees and employers,"
says Ariana-Michele Moore,
author of the report. "However, obtaining the data necessary for
substantiating expenses is not always easy, and the industry has had to
overcome this hurdle as well as educate employees when they can and cannot
use their debit cards. But various tactics have been taken to address both
issues."
The market does face challenges, including
substantiating claims and customer education. And other products such as
HRAs and HSAs will eventually compete for market share. But despite these
obstacles the flexibility debit cards bring to the FSA program will
continue to stimulate the FSA market.
Today, there are approximately 6 million debit cards
in the market tied to an FSA account, 25% of the FSA participating
community. And the near-term outlook for FSA cards is certainly bright.
FSA cards will increase FSA adoption rates. Today the average card
participation rate is around 20%. By 2010, it is projected this rate will
increase to 85%. FSA cards will also encourage higher FSA contribution
levels. According to some FSA administrators, the introduction of a debit
cards can encourage employees to contribute as much as 30% more.
This report offers an overview of these cards,
industry challenges, how these challenges are being addressed, and the
market opportunity. The report concludes with insight into future FSA
debit card trends and the role they will play going forward in FSAs.
The 30-page report contains 10 figures and 2 tables.
