Debit Cards: To Substantiate or Not To Substantiate

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Well, that is a silly question! Always substantiate when an administrator requests documentation.

The better question is: When should participants expect to be asked for substantiation?

Debit cards can provide quick access to employee Health Care Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs). Some swipes can be auto-substantiated; however, this is not always the case.

In a recent Compliance Buzz article, we discussed the IRS regulations on where debit cards can be used and what types of charges can be made for Health Care FSAs, Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). In this article, we will dissect this a little further and address when substantiation is required.

Due to specific and sometimes confusing IRS regulations, participants often have questions about why they are sometimes asked for documentation following the card swipe and other times are not. Because of this, it’s helpful for employers and brokers to have an understanding of what may be happening behind the scenes.

What products require substantiation by a Third Party Administrator (TPA), such as Employee Benefits Corporation?

The IRS requires that participants in a Health Care FSA or HRA provide substantiation to their employer or TPA in order to receive reimbursement. The IRS does not require individuals to substantiate their expenses when withdrawing funds from their HSA. However, HSA accountholders are required to keep proof of valid medical expenses in the event of an IRS audit.

When is substantiation required by the IRS?

The IRS requires substantiation of all claims, unless the claim can be auto-substantiated with certain exceptions. Employers or TPAs that only substantiate claims over a specified dollar threshold or only substantiate a sample of claims are not abiding by IRS regulations. Because of this, employers and brokers should advise participants under the BESTflex Plan or EBC HRA to save all of the receipts associated with Benefits Card transactions and provide them to Employee Benefits Corporation upon request.

There are specific instances in which substantiation of expenses can occur automatically and not require a participant to submit documentation. These include copay matching, recurring expenses and real time substantiation when services are incurred at health care providers (including dental and vision providers). In addition, purchases made through an inventory information approval system (IIAS) are used to fully substantiate a purchase at the time of sale.

Substantiation when using the Benefits Card at a health care provider (including dental and vision providers)

In general, Employee Benefits Corporation will ask participants for substantiation of expenses from health care providers, except for cases copay matching and recurring claims.

COPAY MATCHING can occur if a Benefits Card swipe amount matches a known copayment of the respective health plan. Swipes are auto-substantiated for charges in the amount of the copayment or multiples of the copay (up to five times).

Example: Jane’s employer has an office visit copayment of $10.00. When Jane uses her Benefits Card at her doctor and is charged $10, the claim will be auto-substantiated and Jane will generally not be asked for documentation. This would also apply if Jane pays for multiple visits at one time, up to $50.00 (5x the $10.00 copayment).

RECURRING CLAIMS can occur when a participant has claims on a recurring basis in the same dollar amount, from the same provider. After the first claim is substantiated, subsequent claims can be auto-substantiated.

Example: George sees a chiropractor every two weeks. Chiropractic care is not covered by George’s insurance, so George uses his Health Care FSA to pay for these visits. Each bi-weekly visit is $33. The first time George visits the chiropractor and uses his card, he will need to save his receipt and submit it when requested. Additional bi-weekly visits will be auto-substantiated using the recurring expense method.

REAL TIME SUBSTANTIATION can occur if a plan is established with a file feed from an insurance carrier to Employee Benefits Corporation for substantiation of claims. A participant would swipe their debit card and Employee Benefits Corporation would monitor the file feeds for a matching amount and vendor in the carrier information. This option is rarely used for FSAs as it contains a large volume of Protected Health Information (PHI) that is not necessary in administering the plan. In addition, the administration required often causes delays in requesting substantiation. These delays make this plan option more frustrating for participants compared to other plan options.

The EBC HRA will sometimes use a similar program in which the Benefits Card is not used – but HRA claims are based off of a carrier file feed. This process is different than auto-substantiation of debit card swipes.

Substantiation when using the Benefits Card at an IIAS merchant

Ideally, all card swipes at an IIAS merchant would be auto-substantiated and there would be no reason for a TPA to ever request documentation. Unfortunately, this is not always the case. There are times in which purchases from authorized merchants, on authorized merchandise, will still require substantiation.

Typically, substantiation information from a card swipe is directly transmitted to a TPA, verifying that the swipe was for an eligible expense. However, there are times that the IIAS substantiation fails to go through. When this happens, participants will receive requests for documentation.

There is no way to predict when this will occur and on what purchases. Participants should know that there will be times that substantiation is required and that they need to provide documentation as requested.

Example: Sam purchases contact solution (an IIAS approved expense) monthly from an IIAS approved merchant each month. Employee Benefits Corporation does not request substantiation January – March based on the data that is provided from the merchant. In April, the supporting documentation is not transmitted due to a system outage. Employee Benefits Corporation will request substantiation for the April claim. In subsequent months, the information is again transmitted and substantiation is not required.

After substantiation, 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. This is true even after participants have submitted the documentation for substantiation. If a participant ever receives an IRS tax audit, they need to be able to document all medical expenses. Participants should retain copies of this documentation with their tax records.

Categories: Benefits in General, Compliance, Health Care in General | Tags: Medical , Debit Cards , FSA , HSA , HRA , Medical Expenses , Auto Substantiation , Copay Matching , Recurring Claims , Real Time Substantiation , IIAS | Return