The IRS has specific rules about when and how debit cards can be used for Health Care Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Throughout this article, we will refer to these three tax-advantaged accounts as “spending accounts” and the debit cards that access them as “spending account debit cards”.
IRS rules can create confusion for participants who have debit cards. Questions that employers, brokers, and Employee Benefits Corporation often receive include: Where can a spending account debit card be used? What can be purchased with a spending account debit card? When are documents required to be submitted to a third party administrator (TPA)? Unfortunately, there is no “easy” answer to these questions. Below are some helpful hints on debit card regulations how they apply to the Employee Benefits Corporation Benefits Card.
Where can a spending account debit card be used?
The IRS only allows spending account debit cards to be used at certain merchants that meet a number of special requirements. This can include medical providers, merchants with an IIAS approval system (more on that later), and drug stores and pharmacies. Within these categories, each individual TPA chooses which approved vendors can accept their card.
The Employee Benefits Corporation Benefits Card accepts charges from all medical providers (including dental and vision providers) and IIAS merchants. Clear as mud – right?
So, what is an IIAS merchant? Can an employer or broker assist participants in identifying them?
To accept spending account debit cards, merchants that sell medical and non-medical items must have the ability to match these items to a list of eligible medical expenses. That list is called the Inventory Information Approval System, or IIAS. The IIAS eligible expense list is updated monthly and maintained across the industry for the benefit of participating merchants. Merchants are required to load their inventory of purchasable items and match them against the IIAS list. Once matched, eligible products can be purchased with a spending account debit card from that retailer.
To find out what merchants are certified for an IIAS, please go to Quick Forms on our website for either an updated list or a search option. This list includes many retail stores and online merchants, including: FSAstore.com, amazon.com, costco.com, drugstore.com, FSAmarket.com, homescripts.com, pharmacy.com, rx.com and walgreens.com.
What can be purchased with a spending account debit card?
The IRS only allows spending accounts to reimburse “medical expenses,” defined as the costs of “diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” If an expense is on the IIAS list and is purchased from an approved retailer, participants can purchase the item using their spending account debit card.
There are many items that are known as “dual purpose,” meaning they could be used for either a medical purpose or for general health. While participants cannot purchase these items with a spending account debit card, if they need the dual purpose item to treat a medical condition, they may be eligible for reimbursement. To request reimbursement, participants must submit their receipt with a manual claim to Employee Benefits Corporation along with a letter of medical necessity from their health care provider.
An example of this is petroleum jelly. This has a cosmetic use, but can also be used to treat burns. With a letter of medical necessity from a doctor listing a specific diagnosis and the necessity of the treatment – reimbursement may be approved for use from a spending account.
Store merchants should be able to assist participants with identifying what items can be purchased using a spending account debit card. Most online merchants will have some indicator identifying if the charge is FSA/HSA eligible.
If a participant is purchasing both eligible and non-eligible items at the same time, the retailer should be able to separate the total bill based on what can be paid with a participant’s spending account debit card and what would need to be paid with another payment method.
Can over the counter medications be purchased with a spending account debit card?
Yes and No. Currently, over the counter (OTC) drugs require a prescription to be eligible for reimbursement from a spending account. If a participant’s doctor provides a prescription for an OTC drug and the participant takes it to a pharmacy to have a pharmacist fill the script, they should be able to swipe their debit card for the purchase.
If an OTC drug is purchased outside the pharmacy, the participant will still need to have a signed prescription from their doctor. This can be submitted along with a manual claim for review and reimbursement processing.
Do participants need to save receipts?
Yes! For all spending account purchases, employers and brokers should encourage participants to hold onto itemized receipts and any associated documentation along with their annual tax records. This is their proof that they used their card correctly on eligible expenses. In a future article, we will go into more detail about when a receipt is required by Employee Benefits Corporation for spending account debit card purchases.