What Is An Inventory Information Approval System (IIAS) and Why Is It Important?

You’ve enrolled your employees in your new healthcare benefits package and explained what is and isn’t eligible for reimbursement. You thought you’d covered all your bases. But some of your employees are trying to file expenses for wellness treatments and fitness subscriptions that aren’t eligible as part of your pre-tax health plan. 

This guide explains how an inventory information approval system can solve this problem. It’s a necessity for your employees and your business, saving you time, money, and headaches in the long run.

What is an inventory information approval system (IIAS)?

An inventory information approval system (IIAS) is a point-of-sale system merchants use to check IRS compliance for medical purchases made with flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs). When someone shops for their prescription drugs, over-the-counter medication, or other healthcare expenses, the IIAS acts as a filter to prevent individuals from using their tax-advantaged healthcare funds on non-qualifying items. 

Example of a payment transaction using IIAS 

An employee named Lexi needs to purchase a few items at a pharmacy using her FSA benefits card. At the checkout, the merchant uses an IIAS. Here’s how the payment transaction unfolds: 

• Item identification: Lexi scans her items at the register. The IIAS immediately identifies which products are eligible medical expenses according to the IRS. For example, over-the-counter pain relief pills are flagged as eligible, but her pack of gum definitely isn’t.
• Real-time verification: The IIAS communicates with Jane’s FSA account processor to verify available funds and ensure each item is eligible. 
• Transaction approval: Since her FSA account has sufficient balance and all scanned items meet the eligibility criteria, the transaction is approved. The system allocates Lexi’s FSA funds to the qualified expenses.
• Information archive system: The IIAS logs the transaction details in a secure database, using information like date and time, item descriptions, barcodes, and account verification outcomes.
• Audit readiness: If the IRS requests an audit several months later, the archive system allows the merchant to retrieve and present all relevant transaction information to demonstrate compliance. 

What is auto-substantiation?

Auto-substantiation is simply the ability to automatically validate whether a debit or credit card expense is eligible, according to the rules of your FSA or HRA plan. It goes hand in hand with IIAS, which is the most popular method of validating these expenses. However, there are other options too, including: 

• Co-pay logic: Matching transaction and copayment amounts, as supplied by the employer 
• Recurring expense logic: Auto-substantiating identical payments from the same setting after the first has been verified 
• Data file feeds: Matching card transaction data with medical, vision, and dental data 

What are the benefits of using an inventory information approval system?

An inventory information approval system offers numerous benefits for both merchants and consumers. These include: 

Zero upfront medical costs 

Some types of healthcare coverage require employees to front the cost of their medical expenses before filing an expenses claim to receive a reimbursement. But paying for medical bills out of pocket is a huge worry for around half of U.S. adults who wouldn’t be able to afford an unexpected $500 bill. 

An IIAS removes this worry by linking debit and credit cards to FSA or HRA accounts and using available funds instead. Employees remain firmly in pocket, don’t go into debt, and receive fast access to the treatment or medical purchases they need. 

Reduced admin

Retailers and healthcare providers who choose to use an IIAS can expect lower health benefit admin costs. Since the system automatically determines eligibility of medical purchases, there’s no need for employees to submit paper receipts or claims forms. This also reduces paperwork and streamlines the reimbursement process for your benefits admin team. 

And it’s the same story on the employee side too. The point-of-sale approach removes the need to upload receipts or go through a long-winded reimbursement process. It’s convenient, accessible, and people-first. 

Assurance of compliance 

Employees and employers need reassurance they’re using their pre-tax health funds appropriately, with no risk of an IRS penalty. An IIAS checks if any items of purchase match the eligible medical expenses described in Section 213(d) of the Internal Revenue Code. This is a comprehensive list, including a wide range of medical products and services including dental and vision care. 

How Benepass supports auto-substantiation

Benepass is a versatile employee benefits platform with auto-substantiation baked into our pre-tax plans. In 98% of cases, claims are substantiated electronically at the point of sale, thanks to cards layered with IIAS technology and partnerships with a range of medical, dental, vision, and pharmacy merchants. 

In a small number of cases, an employee will attempt to purchase an item that either doesn’t match the copay amount or doesn’t provide enough detail in the transaction data. As a people-first platform, we never want employees to be inconvenienced or denied access to the healthcare they need. Here’s how we handle this situation to ensure compliance with the IRS: 

• We begin by authorizing the transaction but don’t automatically approve it.
• We give the employee 90 days to upload relevant documentation, such as a receipt to Benepass. 
• We provide 12 touchpoints, including reminders and explainers, during this time to support the employee with the process.
• We may lock the FSA or HRA card during this time to prevent your employee from accidentally overspending. 
• We give employees the chance to reclassify the item as another expense type, for example, as a Lifestyle Spending Account item.
• We can accept alternative receipts to offset the spending. 
• We provide a payback option through payroll or personal checks if none of the above options have succeeded. 

Ready to prioritize convenience and compliance in your pre-tax accounts? See our IIAS and auto-substantiation processes in action by booking a free Benepass demo today. Alternatively, feel free to contact sales@getbenepass.com to connect with a benefits specialist.