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February 19, 2004

Receipts essential in health care flex spending

Save your receipts! That is Human Resources’ message for subscribers to the University’s health care flexible spending accpounts plan.

Almost one in four Pitt employees subscribes to these accounts, which allow them to set aside money at the beginning of the fiscal year and apply it as pre-tax dollars to cover non-insured health care costs  such as medical deductibles and co-payments.

This year, to streamline reimbursement procedures, the University introduced the “Benny” card, which is administered by Employee Benefit Data Services (EBDS), an independent outsource company for benefits data tracking and management.

In past years, subscribers were required to pay for purchases upfront, submit a claims form with receipts and await reimbursement. With the Benny card, which looks like a MasterCard and is accepted where MasterCard is honored, funds are automatically deducted from the subscriber’s flexible spending account.

Currently, the Benny card cannot be used for over-the-counter (OTC) drug purchases, though some OTC drugs are eligible for flex plan reimbursement under regulations issued by the Internal Revenue Service (IRS) in September.

According to Ron Frisch, associate vice chancellor for Human Resources, the IRS announcement came after Pitt’s Benny card system was in place, so Pitt made the decision to wait until the next plan year — July 1, 2004-June 30, 2005 — when the Benny card likely will be applicable to eligible OTC drugs purchases. Claims for OTC purchases must be submitted the old way, by submitting a claims form accompanied by a receipt identifying the drug, date of purchase and amount requested for reimbursement.

However, for both Benny card prescription and OTC drugs purchases, subscribers are cautioned to save all receipts and to insist that receipts indicate the specific product purchased. This information is necessary in the event of an audit. More than one in 10 (11.4 percent) of Pitt flex plan subscribers have been audited so far this fiscal year, according to Mark Franchak, EBDS representative.

“Anything out of the normal is usually called out by our system,” Franchak said. “If a prescription drug costs less than the co-pay, for example, or if amounts are registered that are not round dollar numbers — these will usually trigger an audit.” The purpose of the audit is to ensure compliance with IRS regulations, he added.

Audited subscribers receive letters requiring documentation to validate expenses and are given 20 days to respond.

Flex plan subscribers who use the plan to pay for non-approved items are required to reimburse their flex accounts, Frisch said.

“Next year, when the Benny card probably will be usable for OTC purchases, I think there will be even more audits, and so we urge [subscribers] to get into the habit of keeping their receipts,” Frisch said.

Additional audits are very probable given the current IRS audit structure, Franchak said. “As of this Jan. 1, the IRS is requiring everything [involving flex plan reimbursement] be audited,” he said. “Pitt is exempt from that this year, because the Pitt plan year begins in July,” Franchak said.

Is the money saved by using flexible spending accounts and the Benny card worth the aggravation for Pitt employees?

A sampling of employees who are Pitt health care flexible spending accounts subscribers was mixed. Concerns were expressed about delays in the activation of Benny cards; audits by EBDS; the “use it or lose it” requirement to spend flex accounts money before the end of the plan year, and the lack of precise guidelines identifying which OTC drugs are eligible.

The Staff Association Council and other campus organizations, as well as individuals, have asked Pitt’s Benefits office for a definitive list of eligible drugs, Frisch acknowledged. But, he said, Pitt was at the mercy of outside decision-makers, primarily the IRS. IRS guidelines issued last fall were general and, in some cases, open to interpretation, Frisch said.

The IRS approved “drugs” and “medicines” that are used to “alleviate or treat personal injuries or sickness,” such as antacids, allergy medications, pain relievers and cold remedies. However, vitamins, cosmetics, toothpaste and toiletries do not qualify under the new regulations. Dietary supplements are likewise ineligible, except when a health care provider suggests their use for a specific medical condition, such as iron for anemia, according to the IRS.

Angela Peskie, a staff member at the Research Conduct and Compliance Office, wondered whether the purchase location made a difference for OTC drug eligibility. “I don’t think contact lens solution is covered, but what if you purchased it at the doctor’s? Or, purchased whitening strips at the dentist’s office?” she asked.

“Frankly, until the IRS and EBDS administrators get together on this, we won’t have [definitive answers],” Frisch said. “This is not just a problem for the University, it’s all employers” who offer flex spending plans.

He added that there is ongoing pressure from employers for the IRS to develop a complete list, and that he expects one to be in place by next fiscal year.

Other employee flex plan anecdotes include:

  • Engineering staff member Rich Colwell said he inadvertently used his Benny card to purchase supplies at a Lowe’s store. The store honored the purchase, and Colwell was audited by EBDS. “I learned a lesson: Keep your receipts.”
  • Kara Richardson of Facilities Management said she loves her Benny card — when it’s working. “It took three weeks to get it activated, and then two months later it would not work at my Giant Eagle pharmacy,” Richardson said. EBDS is working on the problem, she added.

Frisch said Richardson’s predicament likely is an anomaly.

“We haven’t heard that particular complaint,” he said. “But anyone having difficulty with the Benny card being accepted should contact EBDS. The phone number is on the card” (1-800-207-9310).

  • Carol Hodgkiss of the nursing school complained that flex plan subscribers, under pressure to use their funds by the end of the plan year or forfeit them, cannot purchase large amounts of OTC drugs.

According to EBDS’s Franchak, the IRS uses “reasonable” as its standard to guide the amount of over-the-counter drug purchases to complete a flex plan year. “That is open to some interpretation, but I think prudent people can make a judgment about what that means.”

One thing it does mean: Save your receipts.
—Peter Hart                   


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