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installed an IIAS; they decided it would be too easy to misuse the cards if they could be used at grocers and discounters for anything they sold, even if the grocer or discounter also had a pharmacy. However, they permitted stand-alone chain or independent pharmacies (known as "true pharmacies") to accept the card without an IIAS.
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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
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from those that are not eligible. Every item in the grocery store's database is flagged "yes" or "no" for food-stamp eligibility; the scanner automatically keeps a separate total for food-stamp items. In the beginning, the cashier pressed a special "food-stamp total" key, and the customer presented
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Most major pharmacy chains report that 60–65% of their sales come from the pharmacy; therefore, OTC would have to account for 25–30% of their total sales for them to qualify, which is unlikely—especially since each individual pharmacy must qualify separately. Therefore, only independent pharmacies
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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
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until July 2006, in IRS Notice 2006–69. At the same time, the IRS decided to crack down on FSA/HRA providers that were not following prior IRS guidance on FSA debit cards. As part of this, the IRS decided that grocery and discount stores would not be allowed to accept FSA debit cards unless they
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retailers directly for similar purposes: Beginning
January 1, 2007, the merchant must make a record of each transaction available to the employer, or more commonly, to the employer's FSA or HRA provider. This can be done contemporaneously with the transaction, or it may be provided later if the
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are usually not in the main scanner database (though they may be made scannable by tying the pharmacy system into the scanners), but they are almost always FSA-eligible; therefore, the pharmacy department is often categorically flagged as FSA-eligible, the only department to be so treated. (In
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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
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Grocers and discounters immediately challenged the IRS ruling, claiming that their pharmacies were being discriminated against, and that since most "true pharmacies" sold ineligible goods as well, the risk from them was just as great. Therefore, two changes were made by IRS Ruling 2007–02 in
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The terminology used by the IRS in its descriptions of IIAS may seem unusual at first. This stems from the history of IIAS, as it was first developed by an online retailer (drugstore.com) and only later adapted to brick-and-mortar retailing. For example, IIAS is described by the IRS as an
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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
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IIAS works in much the same way, but with medical FSAs, HRAs, or HSAs instead of food stamps: (Usually, the term "FSA" is used to cover all of them; HRAs, HSAs, and non-medical FSAs are relatively rare, and HSAs can also have regular
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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.
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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.
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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:
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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
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If there are other items in the order (or if the FSA debit card did not pay for all eligible items), the scanner or shopping cart then demands another form of payment, such as
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contrast, multiple departments of most grocery stores are categorically flagged as food-stamp eligible, including the meat, produce, and dry-grocery departments.)
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Every item in the store's scanner database is flagged "yes" or "no" for FSA eligibility. (This flag is separate from the one for food stamps, if there is one.)
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Grocers and discounters are allowed to keep accepting the cards until
December 31, 2007; this was to give them sufficient time to install an IIAS.
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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.
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Some of the IRS rules on what OTC items are and are not eligible for FSAs have proven rather arcane in practice; for example,
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is presented for payment, the scanner or shopping cart will charge the card, but for no more than the "FSA-eligible" total.
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that accept FSA debit cards must have an IIAS; by the end of 2008, most pharmacies have an IIAS as well.
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IIAS does have one additional requirement that is not normally found with food stamps, though the
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While other IRS-approved "auto-adjudication" systems for electronic substantiation of
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in the U.S. must have an IIAS in place in order to accept FSA debit cards.
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Though IIAS was first used in 2005, it was not officially approved by the
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Because of this ruling, by 2009 most grocers, discounters, and chain or
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scanners in the 1970s to separate items eligible for purchase under the
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At checkout, the scanner (for brick-and-mortar retailers) or
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The predecessor to the current IIAS was developed by the
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became the first discounter with an IIAS in late 2006.
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and similar items (OTC) as well as prescription drugs.
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46:. Unsourced material may be challenged and removed.
200:paper food stamps; today, the customer swipes an
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360:are OK since they prevent pregnancy, but
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130:technology used by retailers that accept
106:Learn how and when to remove this message
134:, which are issued for use with medical
55:"Inventory Information Approval System"
187:IIAS is similar to the system used by
191:ever since they introduced the first
120:Inventory Information Approval System
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44:adding citations to reliable sources
273:"inventory control" system tied to
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146:(HSAs) in the United States.
140:health reimbursement accounts
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202:Electronic Benefit Transfer
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269:ever audits the employer.
136:flexible spending accounts
402:Example of an IIAS system
351:pharmacy benefits manager
295:Internal Revenue Service
267:Internal Revenue Service
149:By the end of 2007, all
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343:over-the-counter drugs
422:Retail store elements
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323:Internet pharmacies
397:IRS Notice 2007-02
392:IRS Notice 2006–69
329:Importance of IIAS
220:Prescription drugs
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51:Find sources:
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38:Please help
33:verification
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417:Debit cards
210:debit cards
411:Categories
386:References
368:reimburse
250:debit card
175:in 2006.
159:pharmacies
66:newspapers
370:sales tax
362:K-Y Jelly
173:Walgreens
96:June 2022
177:Wal-Mart
138:(FSAs),
358:condoms
193:barcode
126:, is a
80:scholar
233:If an
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262:audit
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122:, or
87:JSTOR
73:books
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118:The
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