The Internal Revenue Service has tried to make life easier for merchants that want to help customers use flexible spending accounts and health reimbursement arrangement funds.
At least temporarily, supermarkets and other retail stores with pharmacy sections and pharmacies that sell large amounts of merchandise other than health care products can accept health account debit cards, IRS officials write in IRS Notice 2007-2, “Section 105.-Amounts Received Under Accident and Health Plans.”
The IRS sparked an outcry earlier this year when it issued Notice 2006-69, a batch of advice that suggested general-purpose retailers with pharmacy sections might not be able to accept health account debit cards.
The earlier notice indicated that customers might have to provide extra substantiation for purchasers of health account-qualified products, such as bandages and vitamin pills, at stores with non-health care-related debit card merchant category codes.
The notice roiled the young, competitive health account card industry.
Congress and regulators have been vague about what consumers have to do to show that health savings account assets are going to cover qualified expenditures, but employers that sponsors FSAs and HRAs must follow detailed procedures to make sure that holders of those accounts can substantiate they have spent account funds on qualified products and services, rather than on products such as beer and pretzels.
Health account program sponsors must use a “pay and chase” program to chase after health account holders who use account assets to buy products that turn out not to be health care products or fail to provide proper substantiation for their purchases, IRS officials note in the new guidance.