Q&A: End-of-year FSA accounts may induce trial across OTC aisles
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Coming toward the end of the calendar year, there will be many consumers perusing purchases of over-the-counter medicines and devices in an effort to deplete their flexible spending accounts, many of which still contain a “use-it-or-lose-it” provision. And those consumers aren’t just pantry loading, effectively shifting OTC purchases from the following year to this year; they’re trying new, and sometimes more expensive, remedies, Jeremy Miller, CEO of FSA.com, recently shared with Drug Store News. Here's what else he had to say:
DSN: How much of the FSA marketplace runs on a calendar year-end deadline as opposed to a fiscal year-end deadline?
Jeremy Miller: Some people have a strict deadline which would be at the end of a plan year and you'd have to deplete the funds. Some people have a grace period, which gives them another 75 days to spend their prior year's funds. And now in 2013 they introduced a roll-over, where you can roll over $500 each year into the next plan. The last time we checked it's split evenly, about one-third, one-third and one-third, as to who has what.
DSN: How many consumers participate in FSAs each year?
Miller: We have 15.5 million accounts. When you add your independents and your spouse, esssentially it's about 30 million people on the FSA side. On the HSA side, there's another 20 million accounts the last time we checked. The average amount put away each year on the FSA side is about $1,400. One of the numbers that is key - there's only a 20% adoption rate for FSAs. So if there were 15 million accounts, there could easily be 75 million accounts if everyone took advantage of their tax free dollars. A lot of people aren't aware of FSAs, they glance over them during open enrollment. Or maybe they've lost money in the past and it's not worth it to them. There's a significant amount of people that leave the tax-free money on the table each year.
DSN: So is participation growing?
Miller: We see about 3% growth. There's not as big an uptick in FSAs [today] as there is in HSAs. When we first launched in 2010, there were about 6 million HSAs and now there are about 20 million. That growth has been much more profound. FSAs have hovered around 14 million to 15 million per year for the past five years.
DSN: At the end of the year on average, how much do FSA plan holders have on hand that they are at risk of losing?
Miller: That's an interesting number. Because if you were to look at our [average order value] you would assume that what's left over for those customers, which skews higher than if you just take the average of the FSA. It's hard to get that number. The Visa study showed about a 4% forfeiture rate on about $1,100, so that'd be $40. Our AOV is much higher in the deadline period, so we think it's around $100 to $200, at least for the customers we have. ... What we've seen in this last year and the year before, is people are buying new products. We're trying to stock our site with as many new products and unique products as possible. Some of those products include the Quell pain therapy device, a [$249] device you wear on your leg. We have a lot of "smart" products, such as a smartphone-friendly blood pressure monitor.
DSN: It sounds like it's high-ticket, one-off items that are gaining trial.
Miller: We see that. We see that throughout the year, too. We’ll launch a product like the acne light therapy systems, and they’ll fly off of the shelves.
DSN: How far out from the end of an FSA plan do you see an uptick in sales?
Miller: We start seeing an uptick in traffic pretty close to the deadline. It’s interesting how you can track year over year and see the same behavior. A key fact is people spend more throughout the year on the products they need. However, because it’s really hard to estimate what you’re expenses are going to be throughout the year, people are always going to have leftover money. So we see a ramp up toward the end of the year.
DSN: What is the bottom line?
Miller: First, we’re really an advocate not just for OTCs, but all of healthcare in trying to make FSAs and HSAs as simple as possible to use, manage and spend. In doing that, we are the only company that only sells [FSA-eligible] products. … We guarantee that everything you buy will be covered.