Use of Debit and Credit Cards by Cafeteria Plans Approved

The revenue ruling examines three scenarios. In the first, the employer sponsors one or more major medical plans for employees that provide coverage under accident and health insurance. The employer also sponsors an HRA and HCFSA that reimburse participants' uninsured medical care expenses up to a maximum reimbursement amount that is fixed at the beginning of each year. In conjunction with the HRA and HCFSA, the employer allows electronic reimbursement of medical expenses through the use of a debit card up to the maximum dollar amount in the cardholder's HCFSA or HRA. Use of the card is limited to health care merchants and service providers authorized by the employer; and the employee must certify that the card will only be used for eligible medical care expenses, that any expense paid with the card has not been reimbursed, and that the employee will not seek reimbursement under any other plan covering health benefits. When the card is used at the point-of-sale, the provider is paid the full amount of the charge provided there is sufficient money available in the HCFSA or HRA, and the cardholder's maximum available coverage remaining is reduced by such amount.

All charges to the card, other than copayments, recurring expenses and real-time substantiation (described below), are treated as conditional pending confirmation of the charge. To substantiate the charges, the employer requires participants to submit additional third-party information, such as merchant or service provider receipts, describing 1) the service or product; 2) the date of the service or sale; and 3) the amount. The employer permits automatic reimbursement, without further review, for amounts that equal dollar amounts of copayments under the major medical plan, and for recurring amounts that have been previously substantiated. Also, if a third-party merchant provides real-time verification for the expense, it is considered substantiated.