New IRS Guidelines Simplify FSA Programs

WageWorks reminds employees and employers that the new IRS health care debit card guidance will increase savings on healthcare costs

SAN MATEO, CA – November 13, 2008 – Employers that offer flexible spending account (FSA) programs have some good news for plan participants during this annual open enrollment season. Thanks to new guidance from the IRS, employees who participate in FSA plans will be able to use their pre-tax dollars with more convenience and confidence at a wider array of pharmacies, drugstores and retail outlets*.

Beginning January 1, 2009, all retail outlets* including pharmacies and drugstores, will have to have an IRS approved inventory system in place that can verify eligible transactions at checkout to be able to accept a health care debit card. This will ensure that card is only used for eligible expenses and greatly reduce the need to submit receipts for verification after the purchase.

The new rule should also translate into increased employee satisfaction and participation in FSAs—resulting in lower costs and increased administrative efficiencies for employers and FSA plan sponsors.

“Employers save money and cut administrative costs when their employees enroll in consumer-driven pre-tax benefit programs like FSAs,” said Joe Jackson, CEO at WageWorks, a San Mateo-based administrator of tax-advantaged health, wellness, child care, commuting, and education benefits. “But half the battle is making sure employees participate. The new IRS guidelines reduce the complexity of managing FSA expenses and, when coupled with a health care card, should increase employee participation and significantly improve the employer’s bottom line.”

Some facts and useful information regarding flexible spending accounts:

• Pre-tax programs like FSAs can save participants up to 40 percent on hundreds of products and services like eyeglasses, co-payments, prescriptions, dental care, and over-the-counter medicines.
• When employees use a health care card, money is taken directly from their FSA account and dramatically reduces the need to provide a receipt to verify what was purchased from qualified merchants.
• IRS regulations governing FSAs require employees to verify that all medical goods or services they purchase with pre-tax dollars are eligible for reimbursement. Typically, that meant employees needed to keep track of myriad receipts from providers, pharmacies and other merchants. The new IRS guidelines eliminate a major “hassle factor” for employees who set aside pre-tax dollars to pay for eligible medical, dental, vision and pharmacy expenses during the plan year.
• A list of merchants that are approved to accept health care debit cards is available at www.sigis.com. Tips and guidance on card use can be found at www.wageworks.com/card.

*Retail outlets are defined as any retail health care merchant, such as a pharmacy and drug store, and non-health care merchant, such as supermarkets, discount stores and warehouse stores. As of January 1, 2008, all non-health care merchants were required to have an IRS-approved inventory and checkout system in place to accept a health care debit card.