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Health care debit cards remain convenient tool despite high-profile exit

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Despite American Express Co.'s decision to stop offering its health care-related debit cards at the end of the year, other major issuers will continue offering the credit cards to pay health care bills using employees' health savings accounts and health reimbursement arrangements.

American Express decided recently to pull its debit card because of slow consumer adoption of company-sponsored HSAs, a spokeswoman said. "Acceptance was moving more slowly than we anticipated," she said.

CIGNA Corp. and Empire Blue Cross Blue Shield, which both used American Express debit cards, are looking for new providers, spokesmen for the companies said.

Steve Raetzman, eastern division leader of group and health care consulting with Watson Wyatt Worldwide in Arlington, Va., said the lack of consumer education has much to do with the slow uptake of HSAs.

"This is going to take some education for sure," Mr. Raetzman said. "That's the responsibility of the employer."

It is estimated that 6 million U.S. residents are currently enrolled in HSAs, a number the Treasury Department estimates will reach 14 million by 2010.

Health benefit experts also expect the use of HSAs to grow exponentially over the next three years, which eventually would mean profits for companies providing debit cards as a means for employees to tap their HSAs and HRAs.

"I see this as continuing to grow," said Nancy Atkinson, a Pittsburgh-based senior analyst with Aite Group L.L.C., a financial institution research and consulting firm. "Health care remains a paper-intensive process that needs to be brought to the 20th century, and cards are the way to make that happen."

To date, most major credit card companies--Visa, MasterCard and American Express--offer health care credit cards.

Lissa Thomson, a San Diego-based senior vp with the benefits practice for Lockton Cos. Inc., said the outlook is good despite American Express' decision.

"There is not a shortage of financial institutions that want to play a part in this business," Ms. Thomson said.

HSAs, created by federal law in 2003, allow consumers to save money in a tax-deferred employer-sponsored account to pay future health care costs. The accounts, often dubbed "medical IRAs," go hand-in-hand with high-deductible consumer-driven health plans, which are being offered more often by employers seeking to lower their health care bills and place more financial responsibility on workers.

HSAs differ from flexible spending accounts, which require spending dollars put into the FSA within the same tax year or losing the funds. HSAs roll over each year and can be used for future health costs.

HSAs and FSAs both involve filling out forms and awaiting reimbursement--paper work and time that was eliminated when debit cards arrived as a means for employees to more conveniently access funds in the accounts. "This streamlined the process," said Aite's Ms. Atkinson.

Mr. Raetzman said many employees still confuse HSAs and FSAs and are reluctant to sign up for fear that they would lose their contributions at the end of the year.

"There is going to need to be a shift of thinking for those who had a use-it-or-lose-it account to this savings account," Mr. Raetzman said.

Ms. Thomson said as HSAs catch on, so will more tools--such as debit cards--to utilize them.

That's why most of the other credit card companies aren't about to follow American Express, according to spokespeople for the other major credit card companies.

"I think of this as a blip, limited to American Express," Mr. Raetzman said.

In fact, health care debit cards will become more convenient and user friendly, according to industry experts, and HSAs are slowly catching on.

Bill Sharon, a Tampa, Fla.-based senior vp with Aon Consulting's Health and Benefits Practice, said more than 400 financial institutions now offer HSAs, a figure that has doubled over the past year. Also, there are currently more than 9 million people enrolled in high-deductible CDHPs, meaning they are likely to sign up for HSAs to use pretax dollars to cover out-of-pocket health costs and deductibles.

In turn, credit card companies are looking at ways to increase usage by offering points and rewards for using their card, Mr. Sharon said.

In the future, Ms. Thomson said she expects credit card companies to link HSAs to personal checking accounts in case an employee exhausts funds in their HSA.

Credit card companies are also beginning to offer lines of credit attached to the HSAs, allowing employees to borrow in case of medical emergencies, Ms. Thomson said.

"There's opportunity here for financial institutions," she said.