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 FAQ for Merchants
What is the Special Interest Group for IIAS Standards?
A group of companies involved in supporting Flexible Spending Account (FSA) and Health
Reimbursement Arrangement (HRA) debit card transactions formed a working group called the "IIAS
Standards Interest Group" to establish a voluntary industry standard to meet IRS requirements for
operating an IIAS by the mandated deadline of January 1, 2008. The working group has now
incorporated as the Special Interest Group for IIAS Standards (SIGIS) to manage the standards on an
on-going basis. The SIGIS association is composed of a broad range of participants, including retailers,
card issuers, third party plan administrators ("TPAs"), merchant acquirers, processors, financial
institutions, trade association groups, software vendors, and payment card networks.
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What is an “inventory information approval system” as specified by the IRS?
The retailer's point of sale system identifies eligible healthcare FSA/HRA purchases by comparing the
inventory control information (e.g., UPC or SKU number) for the items being purchased, against a preestablished
list of eligible medical expenses. The list is restricted to "eligible medical expenses" as
described in Section 213(d) of the Internal Revenue Code (including eligible non-prescription items).
The eligible medical expenses are totaled and sent to the payment card issuer's system which approves
the payment subject to coverage under the health plan (i.e., type of coverage provided, covered
participant, etc).
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What is different about the SIGIS standard than approaches implemented by some
retailers?
A retailer may develop its own approach that is compliant with IRS requirements for an IIAS, and then
make separate contractual arrangements with individual TPAs or card issuer processors. With the IIAS
standard developed by the SIGIS association, a broad range of participating retailers will be able to
implement a solution that is recognized industry-wide, which will enable acceptance of all FSA/HRA
payment cards. Likewise, TPAs will implement a common set of procedures that applies to IIAS
transactions at participating retailers. Additional values that were not previously provided will be added
to the authorization message, allowing administrators greater flexibility in debit card plan design than
had been available before, including support for HSA and restricted-HRA plan designs.
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Who is eligible to participate in the SIGIS association?
The group is open to all participants involved in offering, processing or accepting healthcare payment
cards for FSAs and HRAs. Thus, membership is open to retailers, card issuers, third party plan
administrators, merchant acquirers, processors, financial institutions, trade association groups, and
payment card associations.
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Do I need to implement an IIAS system based on my merchant class of trade (MCC
Code)?
Potentially, yes. The IRS states that the cardholder's use of the card is limited to merchants and service
providers with specific merchant category codes (MCC) related to health care, including physicians,
dentists, vision care offices, hospitals, and other medical care providers. The card can also be used at
merchants or service-providers that do not have health care related merchant category codes, provided
that those non-healthcare related merchants or service-providers use an Inventory Information Approval
System (IIAS). It is required that attempts to use the card at merchants or service providers without a
healthcare related MCC code and who have not implemented an IIAS be rejected
An IRS ruling highlighted merchants in categories such as supermarkets, grocery stores, discount
stores, wholesale clubs, mail order vendors and web-based vendors that sell prescription drugs as
examples of merchants that would not be considered healthcare related and would therefore fall into the
class of merchants requiring the implementation of the IIAS system. Additionally, the IRS specified that
after December 31st, 2008 merchants falling into the category of a Drug Stores or Pharmacy will also
not be considered medically related.
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What do I need to do to be able to accept these cards?
The IRS requires many merchants selling health care eligible products to support an Inventory
Information Approval System (IIAS). The IIAS system is a combination of inventory management and
point of sale systems that 1) confirm the health care eligibility of items purchased with a FSA or HRA
card, 2) generate a payment transaction that contains the required IIAS information, and 3) includes an
information archive system that allows the retailer to respond to an IRS audits as required.
The components of an IIAS system will typically include:
- An Inventory Management system that identifies Health Care Eligible Items based on UPC
code and compares them to the item purchased for nationally branded, private label and special
promotionally packaged branded items. The SIGIS association provides a list of nationally branded
eligible products to its members.
- Health Benefit card identification system capability to identify FSA and HRA cards via BIN ranges of
all FSA and HRA cards. The list of required BINS is provided by the merchant's Acquirer.
- Payment Authorization System / POS system that generates an IIAS Auto-Substantiation
Transaction containing all required IIAS Data Elements, including an IIAS flag indicating an IIAS
system was used, the Health Care Eligible Amount, and if supported, the Rx/Prescription Amount.
The Rx/Prescription amount is a subset of the Health Care Eligible Amount. This system should
support partial authorizations to improve the handling and acceptance of FSA and HRA card
transactions.
- Settlement System that supports the settlement of approved IIAS transactions containing the
required IIAS Auto-Substantiation information to a merchant acquirer.
- A Transaction Retention system that supports the storage and retrieval of IIAS auto-substantiation
transactions to respond to IRS audit requests to confirm the eligibility of items purchased on a FSA
or HRA card.
In addition to supporting a system capable of handling IIAS Auto-Substantiation transactions, a retailer
must also join the SIGIS association by completing a membership agreement, complete a Merchant
Self-Assessment / Checklist and complete certification with their Acquirer. These materials can be
completed online at the SIGIS association website at www.sig-is.org.
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Can I buy your software or equipment necessary to run my IIAS?
The SIGIS association does not make or produce hardware or software. The SIGIS association is a
standards organization that works with merchants, their acquirers, issuer/processors and Plan
Administrators to develop consistent standards for the initiating and authorization of debit card
transactions. SIGIS does provide for TPS/POS certification for IIAS systems, please check our website for a list of TPS solutions that have been certified.
In addition, the SIGIS association provides members with the Eligible Items list that is used to
identify eligible healthcare products in a merchant's inventory when supporting IIAS systems. Lastly, it is
suggested that merchants contact their payment card processor for information about how to support an
IIAS and which TPS's have been certified with your acquirer.
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Where do I get equipment to support the IIAS? Who installs it? Who do I call?
In many cases, you will not need new equipment, but will need updates to your existing software to
support IIAS processing. A number of POS vendors for the supermarket, chain drug store, and related
retailers have updated their POS systems software to support IIAS processing. For clarification or
confirmation, you should contact your processing acquirer and/or POS software provider, the
organizations providing your Credit Card / Debit Card solutions or the bank that provides your Credit
Card processing. Your vendors will work with you to install any necessary updates.
A new POS solution could be required for retailers that do not have a POS system that can support
electronic inventory management, UPC scanning, and the additional fields used in the auto
substantiation of payment transactions that are required. POS solutions supporting the required
elements of the IIAS exist in the market today and additional solutions are likely to become available as
more vendors work on their support for IIAS solutions. Contact your POS vendor or acquirer/merchant
processor for information about POS systems that are available to support IIAS processing.
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What certification will be required to support the IIAS standard published by the
SIGIS association?
Retailers who elect to implement an IIAS using the standard published by the SIGIS association must
first be certified by the SIGIS association. Certification requires completion of an IIAS Self Assessment
Questionnaire, a technical processing certification, use of the industry eligible items list, and
arrangements to support transaction data retention/retrieval. A retailer's acquirer will review the
questionnaire and submit it to the SIGIS association for approval. A retailer will not be permitted to claim
that it supports IIAS transactions using the published standard until it has been certified to the IIAS
Standards developed and approved by the SIGIS association.
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If Merchants implements the SIGIS IIAS, are they guaranteed 100% acceptance of
the healthcare debit cards in the market?
While an IIAS system is required for non-healthcare Merchants to accept FSA and HRA cards under the
IRS guidelines, having an IIAS solution will not guarantee 100% acceptance of cards. Many SIGIS
member issuer/processors and the majority of their TPA clients supporting FSA and HRA cards have
enabled SIGIS IIAS processing to authorize and auto-substantiate transactions; however, some
employer benefit plans may require a level of transaction detail that is not accounted for with an IIAS
solution, thereby, preventing acceptance even at Merchants with a fully certified IIAS solution.
In addition, normal decline issues can occur for expired cards, insufficient funds, cards not activated and other reasons.
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Will the SIGIS association assist retailers in determining which items are Section
213(d) eligible medical expenses?
Yes. The SIGIS association publishes an industry Eligible Product List for participating retailers to use
as the basis to identify items in their inventory. Access to the Eligible Product List is available upon
SIGIS membership approval. The Eligible Product List also enables plan administrators and third-party
administrators (TPAs) to rely upon a more consistent identification of eligible medical items.
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How will the Eligible Product List be developed?
The SIGIS association will contract with a company experienced in list management and development,
and will rely on a committee of plan administrators, retailers and other SIGIS members to review the list.
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Is it required that Merchants download the product list?
One of the critical issues in supporting an IIAS solution for employer benefit plans and the third party
administrators (TPAs) that support these programs is assurance that the items being approved through
the IIAS solution meet the health care eligibility standards established by the IRS as defined in IRS
Code Section 213 rules. The SIGIS association has established a relationship with a third party to
provide a standardized list of eligible health care related items. While the IRS does not mandate the
use of the SIGIS Health Card Eligible list, Merchants supporting a SIGIS IIAS solution must use the
SIGIS provided Eligible Product List for nationally-branded items. In addition, Merchants may also flag
private label and local market items as defined in the SIGIS Private Label Eligibility Criteria standards,
see the Private Label FAQ for more info.
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How often is the product list updated?
The SIGIS Eligible Product List is updated monthly. Updates are generally available for download and
use by the 9th business day of each month.
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Why are some items that we (the merchant) have identified as healthcare not
represented on the list?
The source of the list includes most nationally-distributed, regular-stock items. As such, the following
types of items will generally not be included: items specially created for an individual retailer (including
but not limited to private label items); a local, regional, or specialty item; bonus items (e.g. 2 oz free);
BOGOS (buy one, get one), or other in-and-out types of packaging with limited availability or
distribution. Although these items will not be included in the data, they may in fact be eligible.
Because the source of the list is nationally-distributed, regularly-stocked products, private label/store
brands will generally not be available for inclusion on the standard list produced by the SIGIS
association. It is understood that some of these private label/store brand items are, in fact, eligible under
IRS Code Section 213(d), and therefore, can be processed through the SIGIS IIAS. Merchants that
choose to supplement their inventory of SIGIS identified eligible items with their own private label items
are free to do so, but must follow the process detailed in the Private Label Eligibility Criteria document.
That document can be found at www.sig-is.org.
Additionally, dual-purpose items are not included as part of the standard list. These products may have
both a medical purpose and a personal/cosmetic or general health purpose. As a result, Merchants are
not permitted to identify any dual-purpose items (nationally-branded or private label/store brand) for IIAS
purposes. Examples of dual use items that would not be included:
- Baby Formulas/Nutritionals
- Dietary Supplements
- Vitamins
FSA/HRA cardholders that have a doctor's order for dual-purpose items may submit their sales receipt
along with the additional information required by their plan administrator and receive a manual
reimbursement. The current Eligible Products Criteria document may be found on the SIGIS website at
www.sig-is.org
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What is the impact of supporting or not support the Rx Amount?
The majority of the healthcare debit cards in the market today allow for the purchase of all qualified
healthcare items found on the SIGIS Eligible Product List, however there are a limited number of benefit
plans that are designed to only reimburse Rx/Prescriptions. The impact of not supporting the
Rx/Prescription Amount would mean denied transactions from those employer benefit plans. While
these cards represent a minority of the FSA/HRA in the market today, a retailer could limit the
customers that can use their cards by not support the Rx/Prescription Amount in the authorization.
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As a merchant, I implemented an IIAS system, why are card transactions
declining?
Merchants who have implemented IIAS systems continue to see declines on healthcare benefit cards.
While there have been some isolated issues, both at Merchants and at issuer processors, in the initial
implementation of IIAS, the vast majority of transactions are working as intended. That is to say, if the
card transaction declines, it is most likely that the decline is valid.
A reference document called MOST FREQUENT VALID REASONS FOR CARD DECLINE can be
found on the SIGIS website at www.sig-is.org. This list includes the main reasons why properly
formatted IIAS transactions at an IIAS merchant can validly decline against cards that are IIAS enabled.
This is not intended to be an all-inclusive list, but represents the most common reasons that together
account for most declines.
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What is the 90% rule?
In December of 2006, the IRS released guidance (Notice 2007-2) which clarified the types of merchants
required to implement an IIAS in order to continue to accept healthcare related debit cards (see
question and answer #5). In addition, the IRS also included a provision commonly referred to in the
industry as the “90% Rule”. The following is an excerpt from that IRS guidance:
“Accordingly, after December 31, 2008, health FSA and HRA debit cards may not be used at stores with
the Drug Stores and Pharmacies merchant category code unless:
- the store participates in the inventory information approval system as described in Notice
2006-69,
or
- on a store location by store location basis, 90 percent of the store's gross receipts during the
prior taxable year consisted of items which qualify as expenses for medical care under
Section 213(d) (including nonprescription medications as described in Rev. Rul. 2003-102,
2003-2 C.B. 559).”
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How can we get more information?
Plan administrators should contact their card issuer or processor, and merchants should contact their
acquirer. Contact us for membership information in the SIGIS Association.
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