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Medical Expense Reimbursements

Medical Expense Reimbursements
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Health Care Cost Reimbursement

How does insurance reimbursement work for medical supplies?

The Affordable Care Act became law in March 23, 2010. The purpose of this law was to make health care more accessible, affordable and of higher quality for families, seniors, and businesses. This new law still accommodates many different types of reimbursement plans for medical expenses. This article examines some of the key medical expense reimbursement plans available for Americans.

Reimbursable Medical Expenses

Eligible medical expenses for reimbursement include the costs of curing, diagnosis, mitigation, prevention of disease, and treatment affecting any part or function of the body. These expenses must be associated with legal medical services provided by licensed dentists, physicians, surgeons, and other medical practitioners. Reimbursable medical expenses may include the costs of diagnostic devices, medical equipment, and medical supplies. Some examples include bandages, arm slings, braces, BPAP device, compression socks, flu shots, weight loss drugs, hand sanitizers, heart monitors, and oxygen equipment. Qualified medical expenses must be primarily to alleviate or prevent a physical or mental defect or illness.

Cosmetic or “general health" expenses are not qualified for reimbursement. These items include teeth whitening, tooth brushes, laser hair removal, marriage counseling, maternity clothes, and air duct cleaning. Below is a link to a brief list of medical items that are and are not reimbursable.

Brief List of Medical Reimbursable Expenses

Prescriptions

Health Insurance Claims

Over the counter (OTC) items such as equipment, medical devices and medical supplies are reimbursable without a prescription (Rx). Examples of items that do not require a prescription include crutches, walkers, bandages, dressings, blood sugar test kits, and diabetic supplies.

Letter of Medical Necessity

Although OTC items do not require a Rx for reimbursement, a Letter of Medical Necessity must be provided in a written order from a Medical Doctor (MD) or a Doctor of Osteopathic Medicine (DO) licensed in the state they are legally practicing The Letter of Medical Necessity must include all required information, including the name and quantity of the medical item required by the patient and the duration of the treatment that must not exceed one year. Below is a link to a sample form of a Letter of Medical Necessity.

Letter of Medical Necessity

Reimbursement for medical expenses is usually accomplished in one of the following ways—Medicare Part B, Health Savings Accounts, Flex Spending Accounts, Section 105 Plans and standard medical care plans. Medical care plans are governed by regulations and by the company that provides the plan. The other medical expenses reimbursement plans are briefly described below.

Medicare Part B

Medical Treatments

Medicare Part B covers durable medical equipment (DME) expenses. These expenses are for medical necessity items that your doctor prescribes for you to use in your home. These items must be used for a medical purpose, must be durable with an expected product lifetime of at least 3 years, must be used in your home, and is not useful to someone who is not sick or injured. Examples of medical equipment covered by Medicare Part B include walking canes, crutches, hospital beds, nebulizers, oxygen concentrators, patient lifts, suction pumps, and walkers.

Medicare Part B works through medical suppliers that accept assignment. That means that your DME supplier and your doctor must be enrolled in Medicare. If they are not enrolled, Medicare will not reimburse your expenses.

If you meet the requirements for Medicare Part B, Medicare will reimburse you up to 80% of the Medicare-approved amount minus the part B deductible. Additionally, Medicare Part B may require one of three options—that you purchase the equipment, that you rent the equipment or that you choose to purchase or rent.

Health Savings Accounts (HSA)

Health Savings Accounts allow you to contribute to a HSA through enrolling in a Qualified High Deductible Health Plan. Sometimes referred to Section 125 Plans or Cafeteria Plans, an HAS allows your employer to deduct from your salary up to a specified amount that is tax free for use in paying medical expenses. To use an HAS, you cannot have any other health coverage for the first $1,300 of your eligible medical expenses or $2,600 if family coverage is provided. Any amounts contributed to an HSA and any earnings are tax free as long as they are used for proper medical expenses. There is no requirement to use the money you contribute by a specific date; however, there is a cap on how much you can contribute for each calendar year.

Health Checkup

Essentially, a Health Savings account is a modified bank account. HSA withdrawals can be made for any qualified medical expense specified in IRS Publication 502 and include both medical and dental expenses. Over-the-counter medications are not qualified without a medical doctor's prescription. Health Savings Accounts may be used for your own medical expenses, for your spouse, or any tax dependents up to the age of 26.

Flex Spending Accounts (FSA)

Flex Spending Accounts allow money to be set aside into a Medical Reimbursement Account that is deducted from your paycheck completely pre-tax. No Federal, State or FICA taxes are ever paid on that money. When you get your W-2 at the end of the year, your gross wages, Social Security wages, and Medicare wages will be reduced by any amount you put into your FSA during the calendar year. A signed salary redirect agreement is required each year and you must elect an amount to contribute to your account during the plan year to participate. The salary redirect agreement and election amount must be submitted before the plan year begins. Your election amounts cannot be rolled over from year to year. Your entire election amount is available for reimbursement to you the first day of the plan year; therefore, you will not be allowed to make changes to that election amount during the plan year unless you have a Change of Family Status. Some Flex Spending Account plans allow for an additional time period after the end of the plan year to use the money from the previous plan year.

Health Reimbursement Arrangement (HRA)

Health Reimbursement Accounts are employer-funded health benefit plans that offer certain tax advantages to employers on behalf of their employees. Approved by the IRS, this plan is not considered health insurance but allows employees to be reimbursed for out-of-pocket medical expenses and individual health insurance premiums. An HRA plan supplements health insurance benefits while allowing employees to pay for a wide range of medical expenses not commonly covered by health insurance. Health Reimbursement Arrangements, employers reimburse employees directly only after the employees incur approved medical expenses. There is no limit to the amount of money an employer can contribute to an employee's Health Reimbursement Arrangement. Reimbursable expenses are defined under IRS Section 213d; however, employers may limit reimbursable expenses in any way they choose. HRA's also allow annual rollovers of unused balances to the next year.

Approved Medical Claims

Medical Expense Reimbursement Plans (MERP)

Medical Expense Reimbursement Plans are also known as Section 105 Plans, Accident and Health Plans or Self-Insured Reimbursement Plans. An MERP allows a small business owner to provide tax-free reimbursement of personal health insurance expenses to their employees. MERP's are group health plans that must be administered to comply with the Affordable Care Act (ACA) and associated regulations such as PHS 2711 (prohibition on annual limits) and PHS 2713 (preventive care) -- as well as numerous new administrative requirements. Because traditional employer-provided health insurance is too expensive, many small businesses opt for a Section 105 Plan. The average amount of savings spent by participants is 50%, yielding a 50% savings for the employer.

Below is a chart summarizing the differences in four of the most popular medical expense reimbursement accounts.

FSA

HSA

HRA

MERP

Eligibility

All employees except self-employed

Self-employed or an employee of a small business (50 or fewer employees)

All employees

All employees

Qualified medical expenses

Unreimbursed medical care expenses as defined by Internal Revenue Code section 213, excluding premiums for health insurance coverage and long-term care expenses

Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 Health insurance premiums under a continuation of coverage arrangement (such as COBRA) Health insurance premiums when receiving unemployment compensation Qualified long-term care insurance premiums

Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 and as defined by employer

Unreimbursed medical care expenses as defined by Internal Revenue Code section 213

Nonqualified medical expenses

Expenses not under Internal Revenue Code section 213 Health insurance premiums under a continuation of coverage arrangement (such as COBRA) Health insurance premiums when receiving unemployment compensation Qualified long-term care insurance premiums

Expenses not under Internal Revenue Code section 213 Employer may set additional restrictions

Expenses not under Internal Revenue Code section 213

Expenses not under Internal Revenue Code section 213

Must be covered by a health insurance plan

No

Yes

No

No

Contributor

Employee, employer, or both

Employee or employer, but not both

Employer

Employer

Contribution limits

n limits No statutory limit; limits may be set by employer

Single coverage--65 percent of deductible
Family coverage--75 percent of deductible

No statutory limit; limits may be set by employer

No statutory limit; limits may be set by employer

Funds carried over to next year

No

Yes

Yes

Yes

Portability

Account cannot be maintained if the employee is no longer working for the employer

Continued access to unused account balance if the employee is no longer working for the employer Withdrawals for non-medical purposes are subject to income tax and a 15 percent penalty tax Once the account holder reaches age 65 (the Medicare eligibility age), becomes disabled, or dies, withdrawals for nonmedical purposes are subject to income tax only, with no penalty

At employer discretion

At employer discretion

Cash out of unused amounts.

Not permitted.

Permitted, but results in taxable income.
Subject to 10% excise tax.
Excise tax waived for participants over age 65,
following death or in a divorce situation.

Not permitted.

Permitted, but results in taxable income.