You can purchase an FSA/HSA eligible item or service at drug stores, pharmacies, or even grocery stores and supermarkets with your benefits accounts, but the benefits card may still be rejected at certain time. Why?
IRS Notice 2007-2 & IRS Notice 2008-14- Transition Relief
To begin with, we have to acknowledge that these vendors sell not only health-related merchants, but also a broad range of merchandise that might not be eligible with your FSA plan.
Per IRS ruling, merchants in categories such as supermarkets, grocery stores, discount stores, wholesale clubs, mail order vendors, and web-based vendors are therefore required to implement the Inventory Information Approval System (IIAS) system to accept FSA cards as payments,
The IRS has also specified that drug stores and pharmacies are not to be considered medically related, and thus, must implement an IIAS capability, or registered as a 90% Rule merchant.
With IIAS capability installed, merchants are therefore able to accept your benefits card. You will be authorized with your Healthcare Eligible Total (HET) amount.
Retailers such as Walgreens®, CVS®, Walmart®, and others have implemented the IIAS system. For a complete list of vendors, you can check on-line and download IIAS Merchant PDF for the most current list.
Drug stores and pharmacies can be registered as a 90% Rule merchant. Once it becomes a 90% Rule Merchant, it will be under the approved merchant for your FSA plan. For a complete list of vendors, you can check on-line and download the 90% Rule Merchant List for the most current list.
Card Transaction Authorization
We now know that if you'd like to use your FSA card at a drug store or a pharmacy, they need to be registered as 90% merchants in order to be approved under your FSA plan; or, they could also implement an IIAS system in order to take FSA cards.
Please note that in either case, you are always recommended to keep copies of transaction receipts for possible future substantiation purposes.
If you find your merchant is not on the IIAS Merchant nor the 90% Rule Merchant list downloaded from the SIGIS, that might be the root for the denial.
Another Potential Denial Reason
It is possible that the IIAS system has been installed in specific locations but not all registers within a store. If the card gets declined, you may want to check with the register if it has the IIAS system and try on another terminal.
If your card is not accepted at the merchant, you are always welcomed to pay out-of-pocket first and submit a manual reimbursement claim. If you have any doubts about your denied card transaction, please reach out to firstname.lastname@example.org or our member experience team via LiveChat for further assistance.