IIAS Requirements and Visa FSA/HRA Card Usage at Retail

Effective January 1, 2008, the IRS requires non-healthcare retailers—including supermarkets, grocery, discount stores, wholesale clubs and mail-order merchants—to implement an Inventory Information Approval System (IIAS) in order for consumers with Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) cards to be able to make purchases of eligible healthcare products or prescriptions.

This new IRS requirement means that cardholders may no longer be able to use their Visa FSA/HRA cards at retailers who have not updated their point-of-sale system with an IIAS. This is why it is important to know which merchants are participating and how to effectively communicate this change.

A new industry organization, SIGIS (Special Interest Group for IIAS Standards™), has been established to develop and oversee standards for the implementation of IIAS transactions designed to achieve IRS compliance. Visa is a founding member of SIGIS and directly supports the new industry standard for IIAS transactions through Visa Auto-Substantiation transactions.

What is an IIAS and how does it work?

An IIAS is a process used by the merchant in their point-of-sale (POS) system to identify eligible healthcare products when the customer is paying for the purchase with an FSA/HRA card. The merchant’s POS system compares products being purchased with eligible healthcare products that the merchant has flagged via use of inventory control information (e.g. product brands, UPC, or SKU number).

A participating merchant’s POS system totals the amount of eligible healthcare products and inserts the amount attributable to such products (i.e., the Qualified Healthcare Amount) in a designated field in the authorization request message, along with other required data fields. This information is passed to the FSA/HRA card issuer for approval.

What types of merchants are impacted by the new IRS requirement for an IIAS?

Effective January 1, 2008, the IRS requires any merchant that sells qualified medical goods and services, but does not have a healthcare merchant category code (MCC), to implement an IIAS. If an IIAS is not implemented, FSA/HRA card issuers are required to decline purchases made with an FSA/HRA card at that merchant. As of January 1, 2009, drugstores and pharmacies must also implement an IIAS in order for FSA/HRA cards to be used there. Merchants that may have previously accepted FSA/HRA card transactions and are affected by the IRS ruling include:

Where can Visa FSA/HRA cards be used?

Visa FSA/HRA cards can be used at all healthcare merchant locations such as stand-alone pharmacies, doctors, dentists or hospitals. In addition, Visa FSA/HSA cards can also be used to make eligible healthcare purchases at SIGIS participating merchant locations that have implemented an IIAS. For a full list of participating merchants, please visit the SIGIS website.

What is SIGIS (Special Interest Group for IIAS Standards)?

A group of companies involved in supporting FSA and HRA debit card transactions formed a working group called “SIGIS” to establish a voluntary industry standard to meet IRS requirements for operating an IIAS. SIGIS is composed of a broad range of companies, including retailers, card issuers, third party plan administrators (“TPAs”), merchant acquirers, processors, financial institutions, trade association groups, software vendors and payment card networks. Visa is a member of SIGIS.

Why will merchants want to support SIGIS’s solution?

The IRS requires that if a retailer’s merchant category code (MCC) is not healthcare-related, then plan administrators can only approve FSA/HRA card transactions when the merchant supports an IIAS. Additionally, retailers that implement an IIAS and begin to identify eligible healthcare items on all sales receipts will be more FSA-friendly for all customers. Implementing an IRS-compliant IIAS through SIGIS allows for uniformity in the list of eligible healthcare products and SIGIS quality control through oversight and merchant certification.

What is Visa’s role in SIGIS?

Visa is a founding member of SIGIS and has been leading the effort in the development of the new industry standards for IIAS.

How should we communicate to cardholders about IIAS?

Visa has developed text that explains the new IRS guidelines to Visa FSA/HRA cardholders and identifies where they can use their card. It also outlines Visa FSA/HRA card usage tips to ensure a positive point-of-sale experience. Download helpful materials, including a buckslip sample and mechanical files, and website copy here:

• IRS IIAS buckslip sample (PDF, 30k)
• IRS IIAS buckslip mechanical files (ZIP, 1.1mb)
• IRS IIAS website copy (DOC, 31k)

What are the benefits of IIAS to merchants?

Merchants that meet the new IRS requirements for non-healthcare merchants will gain the ability to consistently identify FSA and HRA cards and eligible healthcare products; and increase convenience for and potential loyalty among their customers.

What are the benefits of IIAS to consumers?

Cardholders will be able to use their Visa FSA and HRA cards at participating merchants with more confidence and convenience than ever before, reducing the number of times that they have to send in sales receipts after using their Visa FSA/HRA card.

What are the benefits of IIAS to employers and benefit plan administrators?

Employers and benefit plan administrators should quickly recognize reduced plan administration costs, including decreases in paperwork and other staff expenses, while enjoying the benefits of increased employee participation in these programs.

What are some of the reasons why a Visa FSA/HRA card may be declined?

Visa FSA/HRA cards may be declined for a number of reasons. Some of the most common are:

• Card not activated
• Insufficient account balance
• Purchase of non-eligible items
• Card use at a non-SIGIS-certified merchant location

For more information on a specific reason for a Visa FSA/HRA card decline:

• Merchants - contact your acquirer
• Benefit Administrator - contact your processor
• Employers - contact your benefit administrator
• Cardholders - contact your benefit administrator

Is there more information available on IIAS?

For details regarding IIAS and specific requirements, visit the SIGIS website.