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Delayed Debit Card Restrictions

On December 4, 2008, the IRS announced that plan participants that utilize a health plan debit card will have an additional six months before they will be prohibited from using their health FSA and HRA debit cards at stores with Drugs Stores and Pharmacies merchant category codes (MCC). Notice 2008-104 extends the original compliance date of January 1, 2009 (as provided in Notice 2007-2) by six months.

To whom does this requirement apply?
Employers who offer health plan debit cards as a way for employees to seek reimbursement under their health FSA and/or HRA program. This notice does not apply to health plan debit cards that are used as a part of a Health Saving Account (HSA).

What does this notice 2008-104 do?
Originally, health plan debit cards were no longer going to be allowed to be used at stores that fall into the MCC (unless certain conditions are met) after January 1, 2009. However, Notice 2008-104 extended this deadline until June 30, 2009. Plan Participants will be able to utilize their debit cards at these stores after June 30th only if (1) the store participates in the inventory information approval system as discussed in Notice 2006-69 or (2) on a store location by store location basis, 90% of the store’s gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care under Section 213(d), including non-prescription medications. 

When does this notice go into effect?
The notice is in effect now.

How does this notice impact employers?
If Employers have not done so already, they should educate their plan participants about the restrictions that will go into effect July 1, 2009, in order to allow plan participants time to find out if these new restrictions will impact them directly. In addition, until the new restrictions are put in place, substantiation of purchases from these stores is crucial. Plan participants should provide receipts indicating the service or product purchased, the date of service or sale and the amount. Any purchase from a store that has an inventory information approval system will automatically be substantiated and will not require any further information from plan participants.