Debit Card Transactions

Transcription

1 Debit Card Transactions 2 1

2 Jessica Theisen Compliance Advisor, FCS Employee Benefits Corporation The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form

3 5 6 3

4 What is the debit card? When is substantiation necessary? How do we properly use the card? 7 What is the debit card? An electronic payment card that may be used in conjunction with FSAs, HRAs or HSAs May be in many forms Debit card (sponsored by a bank) Credit card (sponsored by a credit card company) Stored value card (sponsored by another agency) Loaded with available balance according to plan Health Care FSA (uniform coverage election) Dependent Care FSA (deposits on hand) HRA (amount available per plan document) HSA (account balance) 8 4

5 What is the debit card? When is substantiation necessary? How do we properly use the card? 9 When a card is provided, participants do not have to pay out of pocket and ask for reimbursement Cards can contain multiple accounts (purses) as long as the funds are kept separate and all regulations are applied appropriately HSA Use Cards may be restricted in same manner as Health Care FSA and HRAs, but it is not required Cards may allow over drafting 10 5

6 Health Care FSA and HRA Use Revenue Ruling allows health plan cards (Health Care FSA and HRA) to be used at providers who had healthrelated merchant category codes (MCCs) Health care Dental care Vision care Drug stores and pharmacies Revenue Ruling the IRS expands card usage to merchants with an inventory information approval system (IIAS) 11 IRS Notice restricts debit card use (was effective July 1, 2009) for drug stores and pharmacies to only include Stores that have an IIAS in place or Have 90% of the store s gross receipts during the prior taxable year consisted of items that qualify as 213(d) medical expenses Merchant category codes can be further restricted by the employer depending on plan Limited Health Care FSA (dental and vision only) HRAs that do not reimburse all 213(d) expenses (health only) 12 6

7 Dependent Care FSA use Cards are not restricted to Merchant Category Codes Cards cannot be used for future expenses and most dependent care providers require pre payments Solution provided by the IRS First payment of the plan year is paid out of pocket by the participant not using the card The participant provides substantiation for the service The card is loaded following the final date of service indicated on the substantiation with the lesser of» Deposits on hand or» Value of service 13 The participant may use card for next payment The card is loaded with amount determined earlier and frequency according to deposits or service dates If the cost of dependent care increases, the participant must pay the difference out of pocket and provide substantiation The card would then be loaded with the difference if deposits on hand exceed the value of service The participant may use card for next payment In all circumstances a manual claim requires substantiation, but in some cases, it is not required when participants use the card 14 7

8 What is the debit card? When is substantiation necessary? How do we properly use the card? 15 When is substantiation necessary? Health Care FSAs, Dependent Care FSAs and HRAs all require third party substantiation of expenses and adjudication of the substantiation in order for reimbursements to remain tax free HSAs require the participant to keep third party substantiation of expenses but not adjudication Debit card transactions require substantiation as well in certain circumstances 16 8

9 When is substantiation necessary? Exceptions to substantiation requirement Transactions involving dollar amounts that match up with pre defined co payments under the employersponsored plan Recurring expenses involving dollar amounts that match up with previous substantiated expenses for that individual Items approved under an IIAS All other transactions that use the debit card must be substantiated after the fact or the card must be suspended 17 When is substantiation necessary? IRS expressly prohibits sampling approach to substantiation in Revenue Ruling Majority of substantiation requests occur when Service is provided at a medical clinic, dental office, chiropractic office, vision provider or 90% merchant Transaction is a dollar amount that does not match other substantiated debit card transactions for the participant Transaction is a dollar amount that the card provider does not have listed as a standard co payment 18 9

10 When is substantiation necessary? Substantiation of expense must include Service provider name Date of service Description of service or item Cost of service or item Substantiation must be provided by a third party Provider s itemized receipt EOB (Explanation of Benefits) from the insurance carrier Cannot be created by the participant 19 What is the debit card? When is substantiation necessary? How do we properly use the card? 20 10

11 How do we properly use the card? Employer set up with card administrator Provide employer sponsored medical plan s co pay amount(s) if applicable Restrict the card to certain Merchant Category Codes if the plan warrants it Decide whether to allow 90% pharmacies for Health Care FSAs and HRAs due to the prescription requirement for OTC Decide whether HSA cards should restrict MCCs Determine whether to stack the card for multiple plans Review plan design to determine which plan pays first Limit one plan to certain MCCs and other plan to others (Limited Health Care FSA in combination with HSA) 21 How do we properly use the card? Employer set up with potential participants Dependent Care FSA process First expense being out of pocket and substantiated before card is loaded (manual process) Process for if expense increases No additional substantiation required, but receipts should be kept by participant as documentation HSA process Where the card may be used No substantiation required, but receipts should be kept by participant as documentation Expenses must be incurred after the HSA was opened If stacked with another plan, when the card pulls from HSA 22 11

12 How do we properly use the card? Employer set up with potential participants Health Care FSA process KEEP RECEIPTS in event substantiation is requested Receipts will be requested unless expense meets exceptions Expense must be incurred during active plan year unless within grace period If stacked with another plan, when the card pulls from FSA HRA process KEEP RECEIPTS in event substantiation is requested Receipts will be requested unless expense meets exceptions Expense must be incurred during active plan year If stacked with another plan, when the card pulls from HRA 23 How do we properly use the card? Ongoing communication with card administrator Termination of employment and leaves of absence Health Care FSA and HRA cards should be shut off when individual is no longer enrolled in the plan Participants ongoing process Ensure the expense is eligible under the terms of the plan (date of service and service provided) Keep any and all applicable substantiation including itemized receipt, EOB, medical necessity letters, and prescription for OTC Respond timely to any substantiation request 24 12

13 What is the debit card? When is substantiation necessary? How do we properly use the card? 25 Substantiation requests are not sent or cards are not suspended when required Participants do not use the card appropriately Use card to pay for expenses incurred prior to plan Dependent Care FSA, Health Care FSA and HRA Prior to first day of current plan year Prior to plan effective date in case of mid year enrollee HSA Prior to the date the HSA was established Use card to pay for ineligible item 26 13

14 Use card to pay for expenses in advance Dependent Care FSA Must pay for first expense out of pocket and then this is allowable Health Care FSA and HRA Cannot substantiate expense until participant can provide documentation that service was provided If expense ends up being less, must pay back plan HSA If expense ends up being less, must pay back plan 27 Use card to pay for expenses in prior plan year HRA Cards can only contain one plan year s balance (Merchant can t tell card what plan year to pull from) Participants within run out period may have a balance remaining, but using the card will pull from current plan year balance Health Care FSA and Dependent Care FSA Cards can only contain one plan year s balance (Merchant can t tell card what plan year to pull from) Card functionality in case of grace period can cause participant confusion 28 14

15 Grace Period Issues Claims submitted during the grace period use old plan year funds first and new plan year funds second Participant may pay bills in order received» Example: John has a January 1, 2015 to December 31, 2015 plan. John has surgery December 15, He does not get his surgery bill until February 26, He uses his debit card on January 5, 2016 to refill his pain prescriptions. John also pays his surgery bill with his card on March 1, The debit card will use old plan year funds first and new plan year funds second. Therefore, his prescriptions will use old plan year funds first. If John does not have enough old plan year funds remaining when he pays his surgery bill, he will have to pay back the difference. 29 Rollover Issues Claims submitted during the run out period use new plan year funds first and $500 of the old plan year funds second Participant may pay bills when received» Example: John has a January 1, 2015 to December 31, 2015 plan. John has surgery December 15, He does not get his surgery bill until February 26, John pays his surgery bill with his card on March 1, The debit card will use new plan year funds first and $500 of the old plan year funds second. It will not draw from the correct plan year and could pay erroneously out of new plan year funds leaving John with a possible forfeiture or having to pay back the plan

16 Participant does not respond to repayment requests IRS memorandum number Correction procedure for improper (or unsubstantiated) payments using the debit card 1. Debit card must be deactivated and substantiation and/or payment must be requested 2. The employee can substantiate claim or repay the plan 3. If the employee does not substantiate or repay, the employer can withhold the amount from the employee s pay (typically with the employee s permission) 4. The employee can offset the expense by submitting eligible receipt(s) for item(s) paid out of pocket 5. If all above procedures are exhausted, employee is indebted to employer and the employer treats it as any other business debt (add to W 2 after a specified period) 31 Participant does not respond to repayment requests Example: John uses debit card to pay for his $200 dental visit Substantiation request is sent to John for expense. Follow up requests occur and following non response, debit card is deactivated Employer asks John if they can deduct the amount from his pay as a post tax deduction. John declines. John sends in receipt showing that part of the dental expense was for teeth whitening (which is ineligible) and does not substantiate the remainder of the charge He submits a receipt for a $100 medical visit to offset the expense One year later, John s employer shows an extra $100 of taxable income in box 1 of his W 2 since he was unable to substantiate or pay back the plan for this portion of his claim 32 16

17 What is the debit card? When is substantiation necessary? How do we properly use the card? 33 Questions? Any questions can be addressed by e mail or phone at your convenience Compliance Department compliance@ebcflex.com Thanks for Attending!! Visit our online blog: