BY MICHAEL JOHNSEN
Consumer-driven healthcare programs like flexible spending accounts are on the rise, and so is the potential to capture the self-care healthcare consumer.
The convenience associated with FSA-debit cards which have become popular in the past five years and have driven significant growth in utilization of FSAs. That and the rising cost of health care have prompted many people to seek cheaper options and the savings an FSA option represents. Employees pay no FICA taxes with the monies set aside as part of their FSA
plans, and neither do the employers, saving them up to 7. 65 percent in payroll taxes. “If they generate enough participation, they can actually cover their [FSA administrative] costs and make money,” said Cathy Graham, director of benefit services at The Employers Association, a human resources out-source company that provides services to about 850 companies in the Charlotte, N.C., region.
Use of FSA accounts is currently on the rise and projected to continue. “Our business has been increasing at a 40 percent rate every Jan. 1,” Graham said.
The addition of OTCs to FSA accounts may be influencing participa-
BY LAURA KLEPACKI
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tion in a different way—by attracting younger consumers. “That does generate a lot of interest from young people who may not go to the doctor a lot, but they do buy Tylenol, cough medicine and, of course, the eyeglasses.”
While this doesn’t necessarily mean incremental OTC dollars— card-carrying customers with FSA accounts are simply swapping payment options—it does represent an opportunity for pharmacy retailers to capture increased OTC foot traffic by trading on that sense of convenience. FSA account holders can use the same card for prescriptions, as well.
According to the U.S. Bureau of Labor Statistics, as of March 2007, 33 percent of all workers participated in an FSA and the largest block ( 55 percent) of those who participated were either in management or professional positions. Participation is also greater in larger companies— 51 percent of employees who work for companies with more than 100 employees have an FSA. Geographically, the Texas area, Pacific and mid-Atlantic regions have the fewest participants ( 25 percent, 31 percent, and 31 percent respectively), while New England and the central Northwest have the greatest number of participants ( 37 percent and 40 percent, respectively).
An Internal Revenue Services mandate, called the Inventory Information Approval System, that requires all retailers accepting FSA debit cards as payment to be able to identify the FSA-eligible expenditures from other purchases in the same transaction, is expected to make the whole process even more convenient for consumers who pay for their medicines and medical devices, and, say, their snacks and toiletries with the same card linked to their FSAaccount. No more will they have to submit paper receipts to FSA administrators for verification that all of their purchases are in fact eligible for payment under an FSA.
It’s a mandate that’s already in place for supermarket and mass-retail operators as of January 1. For drug stores and other pharmacy operators, it will go into effect Jan. 1, 2009.
Internet sellers of OTC products are turning their attention to customers with FSAs— flexible spending accounts.
For one, Amazon.com is in the process of implementing an FSA program for its shoppers, revealed Jeff Fernandez, buyer of HPC-consumables. “We hope to roll it out later this year.”
There are 24 million households with FSAs, according to Drugstore.com. These accounts enable consumers to use pre-tax dollars on medical services and products. But if the account balance is not spent by year-end, it is lost.
To make sure those allocated dollars don’t go to waste, online sellers are making work of highlighting products online that are eligible FSA purchases.
Drugstore.com, which also has a contract with Rite Aid as its online arm, has been the most aggressive to-date with a distinct online “FSA Store.” It includes more than 3,000 FSA-approved products and can issue receipts for FSA-only purchases that simplify the process when submitting claims to the account manager. It also accepts FSA debit cards and will ask for a different form of payment for any non-FSA articles.
Drugstore.com reported its top selling OTC products that are FSA-eligible last year included: Prilosec acid reducer, Clearblue Easy Fertility Monitor test sticks, Ibuprofen 200 mg tablets, Band-Aid Sheer adhesive bandages and Sight Savers premoistened lens cleaning tissues.
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