Understanding Substantiation Requests for Benefit Card Transactions
February 17, 2021
Before healthcare benefit debit cards became available, flexible spending account (FSA) and health reimbursement arrangement (HRA) participants had to pay for their eligible expenses at the time of purchase, submit claim forms along with all receipts, and then wait for reimbursement to be processed.
Today, participants can simply swipe their benefit card and the funds are automatically deducted from their respective benefit account(s) for payment of eligible expenses. The benefit card eliminates most out-of-pocket cash outlays and paperwork, as well as the need to wait for reimbursement checks.
Some situations remain, however, that may require substantiation for FSA and HRA debit card transactions. Confusion and misinformation around these substantiation requests abound and can be a real pain point for employers and plan participants. Here are some helpful details to provide clarity.
What is substantiation?
Debit card substantiation is the process of verifying that purchases made using a benefits debit card for FSAs or HRAs are for an eligible medical expense. These purchases must be substantiated per IRS guidelines. Chard Snyder follows these guidelines to keep our clients and their employees compliant. As the IRS requires Chard Snyder to verify expenses, participants may be asked to submit copies of their itemized receipts to verify their expenses comply with IRS guidelines.
According to IRS specifications, there are two ways to substantiate claims: auto-substantiation and manual substantiation.
Auto-substantiation
IRS regulations allow participants to use their benefit card in participating pharmacies, mail-order pharmacies, discount stores, department stores, and supermarkets that can identify FSA- and HRA-eligible items at checkout and accept benefit cards. Eligible expenses are deducted from the account balance at the point of sale. Transactions are fully substantiated, and in most cases no paper follow-up is needed. Participants can also use the benefit card to pay a hospital, doctor, dentist, or vision provider that accepts benefit cards. In this case, auto-substantiation technology is used to electronically verify the transaction’s eligibility according to IRS rules.
A high percentage of benefit card transactions are automatically approved, but the IRS requires participants to save all receipts in case they are audited.
Manual substantiation
If the Chard Snyder benefit card cannot automatically verify that the expense meets IRS guidelines, Chard Snyder will ask participants to submit copies of their itemized receipts and/or other documentation. Each receipt must show the merchant or provider's name, the service received, or the item purchased, as well as the date of the expense/service and the amount paid. Explanation of Benefits (EOB) statements also contain the necessary information to substantiate purchases made using a debit card. Handwritten notes, credit card transaction receipts or previous balance receipts cannot be used to verify a transaction.
Making substantiation easier
The Chard Snyder Benefit Card is a special-purpose MasterCard that gives plan participants an easy, automatic way to pay for eligible healthcare and benefit expenses. The card has a 93% auto-substantiation rate, greatly reducing the need for additional documentation to prove a purchase was an eligible expense.
When substantiation is requested, the Chard Snyder mobile app makes submitting receipts and documentation faster and easier than ever. Receipts can also be submitted online through the participant portal on the Chard Snyder website.
FSA and HRA participants can learn how to use the Chard Snyder mobile app or online portal to substantiate their expenses by watching this brief video:
Please note: In 2020, medical expense substantiation was updated to include over-the-counter medications without a prescription and feminine hygiene products. There have been other expenses such as hand sanitizer that have been widely promoted due to the COVID pandemic that have not yet been approved by the IRS as qualifying expenses. In the past there have been other expenses that likewise fall under a definition of “dual purpose” which must be further substantiated by a doctor’s written Letter of Medical Necessity (LOMN). It is the responsibility of the plan fiduciary, the employer, and their delegated benefits administrator (Chard Snyder) to ensure cafeteria plan requirements are met. This may mean a request for additional documentation such as an LOMN to the extent that it verifies each purpose. Strict adherence to the rules will guarantee that tax-advantaged plans continue to work for all.