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From requesting receipts for every card swipe to automated adjudication at the point of sale, debit cards for healthcare related expenses have come a long way. Participants’ dreams have become reality for the most part – just swipe and go. That’s because the Internal Revenue Service (IRS) has issued plenty of guidance. Most of this lawmaking is in effect, but part of a 2007 Notice has been delayed until July 1, 2009. First, let’s look at some background on debit card rulings and then discuss which directive was put on hold for six months. Background In the spring of 2003, the IRS released their first debit card guidance. This publication gave direction on how electronic reimbursements should be established by an employer that sponsors a Section 125 health Flexible Spending Account (FSA) plan or a Health Reimbursement Arrangement (HRA). IRS Revenue Ruling 2003-43 limited the use of debit cards to specified Merchant Category Codes (MCCs) related to healthcare and outlined the accepted methods of auto substantiation such as, copayment match, recurring expenses, and real-time third party verification. Notice 2006-69 introduced additional methods of auto substantiation. These include the match up of copayment multiples, insurance carriers submitting claims using an explanation of benefit (EOB) and the Inventory Information Approval System (IIAS). Particular emphasize was placed on the fact that these type of debit cards could only be used at healthcare related vendors. This left drug dispensing vendors like grocery and discount stores in a pinch. Compliance with this notice was to begin on or after January 1, 2007 which meant vendors had very little time to program and institute the IIAS. That’s why IRS Notice 2007-2 was released December 14, 2006. It provided a one year period of transition relief with respect to the use of debit cards at retailers with non-healthcare related MCCs. That meant that grocery and discount stores had until January 1, 2008 to set up an IIAS if they wanted to be a part of the healthcare debit card business. Starting on January 1, 2009, Notice 2007-2 also provided that healthcare debit cards could not be used at merchants with the drug store or pharmacy MCCs unless: 1) The store participates in the IIAS, or 2) On a store location by store location basis, 90 percent of the store’s gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care, including over-the-counter medications. Even if a merchant is designated as a "90 percent" vendor, purchases may not be automatically substantiated like an IIAS transaction. If the purchase matches a copayment amount, is a multiple of a copayment amount, is a recurring expense, or has real-time verification by a third party, it may be auto substantiated. Otherwise, a receipt must be requested from the participant in order to authenticate the expense. What are the rules for 2009? The mandate requiring drug stores and pharmacies to implement IIAS or be designated as a "90 percent" vendor has been put on the back burner for now. Debit cards can still be used at all drug stores and pharmacies until July 1, 2009. Keep in mind that over 35,000 retailers nationwide have adopted the IIAS to date with hundreds more ready in the next few months. For a list of merchants who adhere to the IIAS or are registered as a "90 percent" vendor, go to www.sig-is.org.
Encourage your participants to visit this Web site often as the IIAS list is updated frequently.
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