Debit Cards

[Guest Heather Sachs]

We recently received updates to the IRS rulings regarding debit cards and in the updates it's boldly stated that the IRS has not in the original nor the latest updates approved a "use the card to purchase now and chase later" approach to claims substantiation at merchants without health-care related Merchant Category Codes.

Typically, most debit card vendors allow an employee to use the card at certain merchants without health-care related merchant category codes, on the assumption that such a practice is OK if after-the-fact substantiation by employees is requested by an administrator.

However, if the merchant has a health-care related merchant catergory code, this practice is permitted but subject to some conditions.

My question is, how are other administrators handling this ? Do you feel it is OK to allow this process even though the IRS has not permitted it or are you restricting the card usage to only those merchant with health care related merchant category codes ?

[Jacmo]

The IRS has always required claims substantiation. Nothing has changed in this regard. The problem comes when employees use the card to buy teddy bears and magazines at a drugstore. The drugstore has an approved MCC code. But it also sells items that are not health care related. The only choice is to pay and chase, unless you want to remove drugstore MCC codes from the approved codes list (which can be done).

Some TPAs are now deleting drugstores--and any other provider, such as convenience stores, which also sell aspirin and band aids as well as gasoline and candy--so that their cards will only be useable at Dr.s offices and hospitals. In other words, those TPAs want to be able to "autoadjudicate" all claims--no pay and chase. Keeps their admin expense down.

To maintain the broadest ease of use for the employee, you pay and chase. Abusers have their cards shut down and must file paper claims. We have an employee at one group that has been banned from ever having a debit card again. She can only file paper claims if she wants to participate in the FSA.