Just charge it

Workforce, June, 2003 by Carroll Lachnit

Now that the IRS has clarified rules on the use of debit or credit cards for health flexible spending accounts and qualified health reimbursement accounts, employers that have been waiting in the wings are likely to jump in and sign up.

"This will accelerate what was already a burgeoning market," says Rob Butler, vice president of marketing and sales for mbi, a company in Waltham, Massachusetts, that has been providing debit cards to employers and third-party administrators since 1995.

The debit cards, also called stored-value cards, allow employees to pay for prescription, office-visit, and other medical co-pays with a swipe of a card that deducts the amount from the FSA or HRA account. Dedicated credit cards work much the same way, but the employer is billed for the charge. Then the employer deducts the amount from the FSA or HRA account balance. In both cases, it ends the time-consuming process of filing FSA claims and waiting for reimbursement.

The IRS ruling, issued in May, spells out an acceptable approach for substantiating the validity of claims paid for with the cards. The ruling is "a big plus" for employers and employees, says Phillip A. Hood, director of sales for Conexis, a third-party administrator of FSA plans based in Orange, California.

The ruling didn't address every question about debit cards, says Tami Simon, an attorney and a member of Mercer Human Resource Consulting's Washington Resource Group. Still outstanding are questions about requirements for Form 1099 reporting, a "shoebox" requirement that obliges cardholders to acquire and keep invoices, receipts, and other documentation, and the matter of whether COBRA beneficiaries can use the cards, Simon says. In the meantime, she says, "employers approached by eager vendors of these debit and credit card products should be mindful of this ruling and make certain the product they are considering meets the guidelines in the IRS ruling."

The ruling is available in POF format at the Web site of the Employers Council on Flexible Compensation, www.ecfc.org.