IRS OKs Card-Based FSA Administration

Evolution Health and its competitors offer card-based systems to ease administration, but some employers have been wary because of lack of IRS guidance on use of cards, Porritt says.

In the new revenue ruling, Pie describes an employer that requires receipts or similar substantiation for most claims. But the employer does without receipts when an employee spends an amount equal to a health plan co-payment at a doctor's office or other health care facility; when an employee spends the same amount for an eligible good or service, such as a prescription drug refill, on a regular basis; or when some entity, such as a pharmacy benefit manager, uses electronic systems to immediately notify the employer whether a charge was for an eligible medical expense.

The same employer also has a program in place for getting money back from workers when workers end up getting reimbursed for what turn out to be ineligible expenses, Pie writes.

Pie then describes an employer that polices use of FSA cards solely by checking some of the FSA claims to see whether they were really eligible for reimbursement.

The procedures adopted by the first employer comply with the relevant rules and regulations, but the sampling techniques adopted by the second employer "do not provide that every claim is substantiated," Pie writes.

Because the second employer's procedures do not substantiate every claim, employees who use its FSA might end up having to include FSA contributions in their taxable income, Pie concludes.