Ever wonder how card processors and administrators sift through the thousands of products offered at grocery stores and pharmacies to determine which ones to approve or reject? And do it in real time for customer convenience without significantly increasing the pricing model for cards? We did.
Or ever wonder how merchants, vendors and card processors are held to approving only eligible 213(d) expenses, and who monitors them to keep everyone honest -- and the industry on good terms with the IRS.
The solution to these questions (among others) led to the formation of an industry group -- Special Interest Group for IIAS Standards, known simply as SIGIS.
Some background:
The IRS made the use of electronic payment cards a reality with revenue ruling 2003-43. Cards were to be used only for eligible health care expenses. Restricting cards to merchants with health merchant category codes emerged as a solution. Many card processors also permitted the cards to be used at grocery stores and discount retail stores as long as cards could be restricted to specific terminals (i.e. in-store pharmacies).
The IRS became increasingly concerned with stories of lawn chairs, soda and other non-health related expenses being purchased along with prescriptions. Three years later, the IRS issued revenue ruling 2006-69, which made it mandatory for all grocery and discount retailer stores and drugstores to implement an inventory information approval system to assure expenses remained legitimate health-related expenses.
The devil is always in the details, and this was no exception. With much lobbying by members of the Employers Council for Flexible Compensation and others, the IRS granted an extension so grocery, retail and mail-order prescription stores were given until the end of 2007 -- and drugstores until the end of 2008 -- to implement IIAS. The efforts of the lobbying group then shifted to a search for a standard solution, and SIGIS emerged.
Fast forward to today. SIGIS consists of all the key players in the electronic payment card arena: employers, third-party-administrators, health plans, issuers/processors, payment card networks, merchant acquirers and merchants. Membership includes most national grocery store and pharmacy merchants; smaller regional and Mom & Pops are added weekly. In addition to creating and maintaining (in accordance with IRS regulations) an eligible products list, which is the basis for IIAS, SIGIS also offers a certification program for merchants indicating their compliance with standards and plays the industry watchdog role in investigating reported infractions of the standards.
Having one standard product list of eligible 213(d) expenses levels the playing field for all parties. The concern that smaller merchants would be left without a solution has been addressed. The employer/plan sponsor fear that each administrator and card processor would use different lists resulting in customer confusion has been addressed. Administrators' concerns that competitors might use more liberal lists, resulting in further IRS restrictions, has been addressed.
This is a great enhancement for all of us as we will not be required to ask for documentation for any purchases made at IIAS-certified stores, thereby making electronic payment card use more straightforward for card participants. Even more exciting is seeing the merchant world come together with the Visa and MasterCard associations to make this work.
For additional information, e-mail Kendall Hall at khall@fbmc.com or log on to the SIGIS site at www.sig-is.org.
