Evolution Benefits Opposes Pending HSA Substantiation Bill

Business Wire, April 11, 2008

AVON, Conn. -- Evolution Benefits today sent a letter to Chairman Rangel and Ranking Member McCrery of the House Ways and Means Committee urging that recently reported legislation requiring substantiation of qualified medical expenses be withdrawn or rejected.

While Evolution Benefits has furnished the Congress and the Administration with data that shows a potentially meaningful amount of HSA spending going for non-qualified items (an issue first raised by a GAO report in 2006), the company believes that it is premature to require FSA-like substantiation for HSAs.

In its letter, the company stated that a more acceptable approach would be to require only that HSA administrators report to the taxpayer and the IRS on the amount of unsubstantiated contributions in order to help them to manage the program properly. This would allow administrators the flexibility to determine the amount of voluntary substantiation they wish to undertake.

From the outset, Evolution's activities have been motivated by a desire to strengthen HSAs against potential attacks around undocumented non-qualified spending. We therefore categorically reject recent mischaracterizations that we are attempting to promote our patented substantiation technology, with some even asserting that the Ways and Means bill is an "earmark" for the company. In fact, the pending bill as well as the company's proposed reporting substitute would both actually preclude use of the Evolution Benefits' patented FSA substantiation technology since that technology prohibits nonqualified spending at point of sale, which would not be allowed in the case of HSAs. Such lobbying tactics are an effort to divert attention from the real issue, which is whether the HSA program is functioning as designed and enacted.

Evolution Benefits believes that this whole area deserves more measured consideration by the Congress and industry participants, including an opportunity for the Treasury Department to demonstrate the extent to which taxpayer self-certification of nonqualified distributions is taking place, and that the reported bill is therefore premature. The company's letter to Rep. Rangel and Rep. McCrery is as follows.

April 11, 2008

[TABLE OMITTED]

Dear Chairman Rangel and Ranking Member McCrery:

On April 9, the Ways and Means Committee reported HSA legislation requiring substantiation of qualified medical expenses. We appreciate the Committee's attention to the issue of whether the HSA program is functioning as designed, and we would note that existing law is silent on the question of whether qualified expenditures should be substantiated by the administrator or self-certified. Either is permitted.

Prior to markup, we had suggested that any new legislation should only require that administrators report to the IRS on the amount of unsubstantiated distributions. The Ways and Means bill goes beyond that and would treat unsubstantiated distributions as taxable. Our preferred reporting approach would allow HSA administrators to compete in the market on the extent to which they would offer substantiation services to their clients, balanced against the extra expense that would entail. We continue to believe that is a better and more acceptable approach, and we agree with those critics who argue that full FSA-level substantiation should not be required at this time. Contrary to allegations that we are trying to gain an unfair advantage in the market, this approach would permit the use of substantiation technology which is inexpensive and widely available in the market and would not even permit the use of Evolution Benefits' patented technology (which blocks non-qualified expenditures at point of sale). The reporting approach should reduce the number of taxable distributions which are not being reported and help both taxpayers and the IRS to manage the program properly.

Of course, even a substantiation reporting requirement may be unnecessary if there is evidence that account holders are properly self-certifying their taxable HSA distributions. The Treasury Department presented preliminary information during the Ways and Means markup that a material number of taxpayers with HSAs were indeed reporting some of their distributions as taxable. This is important new information and it needs to be further developed and analyzed. For this reason, and because we believe the Congress needs to study this whole area more closely, we would urge that the measure as reported out on April 9 be withdrawn or rejected at this time.

Sincerely,

Evolution Benefits, Inc.

About Evolution Benefits:

Evolution Benefits, Inc. is the industry leader in electronic benefit payment solutions for the employee benefits market. Its primary product, the Benny[TM] prepaid benefits card, applies advanced payment and patented auto-substantiation technologies to health-related benefits accounts such as Flexible Spending Accounts, Health Reimbursement Accounts, and Health Savings Accounts. Evolution Benefits auto-substantiation technologies were patented in 2007 and other patents are pending. The company now powers the programs of more than 175 health plan and administrative services organizations and covers more than 7,700 employers, including 100 of the nation's top-ranked Fortune and Forbes companies. For more information, visit www.EvolutionBenefits.com.