Importance of IIAS
In addition to the above IRS requirements, IIAS is important in promoting the use of tax-favored health accounts, especially FSAs (which are usually set up by employees), for these reasons:
- While other IRS-approved "auto-adjudication" systems for electronic substantiation of FSA debit card charges are geared towards health plan expenses, such as copay matching or electronic transmittal of explanations of benefits, IIAS is the only one that is designed for use with over-the-counter drugs and similar items (OTC) as well as prescription drugs.
- IIAS is the first system with 100% "auto-adjudication" of an entire class of FSA debit card charges that has been widely adopted by the FSA industry. A few FSA vendors had previously used proprietary systems which provided 100% auto-adjudication of prescription charges thru a pharmacy benefits manager, but they ran into numerous technical and educational issues and were not adaptable to OTC.
- Some of the IRS rules on what OTC items are and are not eligible for FSAs have proven rather arcane in practice; for example, condoms are OK since they prevent pregnancy, but K-Y Jelly is not if it is used to lubricate them. IIAS effectively manages this problem by verifying eligibility of each OTC item at point-of-sale.
- Both paper claims and manual substantiation of FSA debit card charges often required the submission of receipts with "full names" of OTC items; but many stores abbreviate item names in such a way that it is almost impossible to tell if the item is eligible or not. Also, most providers did not reimburse sales tax on paper claims with "mixed" FSA/non-FSA receipts because they could not "split" the tax line item without being versed in the sales tax laws of every state and locality in the U.S., a near impossibility. IIAS avoids this by having the retailer itself verify item eligibility and "split" the sales tax.
- The process of demanding receipts or reimbursement for FSA debit card charges that are not "auto-adjudicated", known as "pay and chase" in the industry (a term recognized by the IRS in Notice 2007-02), proved particularly cumbersome for OTC items due to the lack of "auto-adjudication" systems and the high potential for fraudulent or erroneous charges; IIAS eliminates this by providing an "auto-adjudication" system for OTC while preventing many fraudulent or erroneous charges at retailers.
Since IIAS eliminates many of the roadblocks that previously existed for use of medical FSAs at retailers (especially for OTC items), it is hoped that it will lead to increased enrollment in medical FSAs.
Read more about this topic: Inventory Information Approval System
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