FSAStore.com features thousands of eligible products and services, as well as listings of health care providers.
Jeremy Miller’s research into flexible spending accounts drove him to make FSAs the centerpiece of his M.B.A. studies at Columbia University’s business school five years ago. FSAs allow workers to put aside pretax money from their wages each year to pay for health care products and services not covered by insurance policies.
Last year, Mr. Miller decided to capitalize on what he learned, launching FSAStore.com, an e-commerce site in Manhattan devoted solely to FSA-eligible items and services. The online hub features thousands of FSA-eligible products that it ships to customers within two to three days. It also lists a roster of 300,000 health care professionals, from acupuncturists to dentists, indicating which of their services are and aren’t FSA-eligible.
With 35 million Americans covered by flexible spending accounts—in which they lose money they don’t use by the end of the year, and thus are eager to drain—investors are paying attention. FSAStore.com garnered $800,000 in venture financing last May from an investor group led by Point Judith Capital, after securing about $125,000 in startup capital, including $60,000 from Menlo Park, Calif.-based angel investment fund Opal Moon, $25,000 from Columbia’s Eugene M. Lang Entrepreneurial Initiative Fund, and the remainder from family and friends.
David Martirano, co-founder and general partner at Point Judith Capital, said the “very confusing” environment surrounding FSAs provides FSAStore.com—as an exclusive purveyor of FSA-eligible products—with a “huge opportunity” to educate its customers and help them manage their FSAs.
FSAStore.com has so far attracted more than 5,000 registered users across the country, including 500 in New York. To help consumers make the most of the site, Mr. Miller has posted up-to-the-minute details about rules governing the spending benefit, including a thorny law that was enacted this year as part of health care reform. It requires FSA holders to get doctors’ prescriptions for over-the-counter items like Tylenol for reimbursement, and it makes paying for these OTC products with a debit card a multi-step process.
Therein lies a key challenge confronting the seven-employee firm—government regulation that may discourage people from using FSAs. “It seems that government is slowly, or not so slowly, strangling [Mr. Miller’s] business,” said Ira Davidson, director of Pace University’s Small Business Development Center.
Adding insult to injury, the new health care law places a $2,500 cap on health care FSAs in 2013; currently, employers are allowed to set the maximum annual savings for workers. According to J.D. Piro, principal and national practice leader with Aon Hewitt’s Health & Benefits Legal Practice, the average FSA held $1,460 last year, and account holders are tapping them to the greatest extent possible. “People are tending to cash out these accounts” because of the recession, he said.
Since last November, FSAStore.com has tweaked its website at least a half-dozen times to help account holders navigate the complicated benefit. It has, for instance, added color-coded icons that distinguish between FSA-eligible items and FSA-eligible medications that require a prescription, as well as a feature that enables customers to purchase both prescription and nonprescription items in one transaction but to pay with different FSA-permissible cards. “We cater to the account holder, making it simpler to use these accounts,” said Mr. Miller.
To keep his technology on the cutting edge, Mr. Miller recruited Azar Gurbanov, a classmate from Columbia who co-founded a telecom company in his native Azerbaijan, as a business partner and the firm’s chief operating officer.
So far, the startup has benefited from revenue-sharing partnerships with FSA-compliance administration companies that promote FSAStore.com to their account holders. FSAStore.com is on track to generate seven-digit revenues this year from both selling products and carrying ads for services such as Lasik surgery on its site, said Mr. Miller. To keep growing, however, he faces a formidable challenge: Continuing to outrun government regulations.