New Trends Using Prepaid Debit Cards to Lower Workers Comp Insurance Costs

A recent trend in workers compensation that seems to be catching on is the use of prepaid, reloadable debit cards for the payment of indemnity benefits and the reimbursement to the employee of employee paid medical expenses. Citibank, JP Morgan Chase and other large banking systems have recognized there is a lot of money to be made by charging transaction fees on the $30 billion plus paid each year to injured employees.  

 

 

After the New York State Workers Compensation Board and the New York Department of Insurance (DOI) approved the used of debit cards, the use of debit cards has grown rapidly. The New York DOI placed the following limitations of prepaid debit cards: (WCxKit)

 

1.      If the employee request a check be issued for indemnity benefits instead of a debit card, the insurer must do so

2.      The insurer must deposit the funds into an insurer-owned funding account, and transfer the funds to a non-interest bearing account in the employees name

3.      The debit card can not exceed an available balance of $25,000

4.      The employee is limited to withdrawing no more than $1,000 per day from ATMs

5.      At least 40 other states have now approved the used of debit cards to pay workers' compensation benefits. 

 

 

Debit cards often come “branded” – meaning they come with a Visa, MasterCard or Discover logo on them, which allows them to be used anywhere the brand is accepted. Insurers can also get their logo on the debit card, if they prefer. MasterCard (which obviously has an interest in insurers using debit cards) has made the claim that insurers could save up to $60 per claim using a debit card for indemnity benefits and reimbursed medical expenses.

 

 

The issuance of debit cards to pay workers compensation benefits has both advantages and disadvantages. The advantages for the workers compensation insurer in partnering with a bank to issue prepaid debit cards for payment of benefits include:

 

1.      Employees are accustomed to using credit cards and debit cards and most employees readily accept the use of them for their work comp benefits

2.      The elimination of the cost of issuing paper checks

3.      Funds can be electronically deposited and tracked

4.      A reduction in the resources needed to process the work comp payments

5.      Control of the date the employee receives payment

6.      Elimination of the late check problems

7.      Elimination of stolen or lost checks

8.      Elimination of stop payment cost when checks are lost or stolen

 

 

Debit cards can also provide benefits to the injured employee, including;

 

1.      Immediate access to their money the day it is paid

2.      Elimination of the time the “check is in the mail”

3.      Employees without banking accounts avoid check cashing fees

4.      Employees can use the debit cards at ATMs, pay bills on line and make purchases anywhere the branded debit card is accepted

 

 

There are disadvantages to debit cards as well including:

 

1.      They are not free, there is a cost of issuance of the card, which offsets part of the savings from not issuing checks

2.      Debit cards get lost or stolen, with the ensuing hassle for the adjuster in canceling the debit card and having it reissued

3.      Some employees will prefer having the paper check resulting in duplicate systems in some states or compelling the employees to accept the debit card in the other states (WCxKit)

 

 

While prepaid, reload able debit cards for the payment of workers compensation benefits is still only a small portion of the payment of benefits, it is a growing trend. The cost savings to the insurer can be significant enough that the insurers are willing to accept the issues that come with the use of debit cards.   As more insurers migrate to debit cards for the payment of benefits, the acceptance of their use in workers compensation will become routine.