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Medical Expense Reimbursements

By July 21, 2016 1176 Views 1 comment

Health Care Cost Reimbursement

Medically Edited and Reviewed by: Dr. Erin Zinkhan MD, BSBE

Updated: 05/14/2019

What is Health Insurance Reimbursement for Medical Supplies?

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

Reimbursable Medical Expenses

Medical expenses eligible for reimbursement include the costs of treating, diagnosing, and preventing disease and the costs of 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 of reimbursable medical expenses include bandages, arm slings, braces, CPAP devices, compression socks, flu shots, weight loss drugs, hand sanitizers, heart monitors, and oxygen equipment.

Qualified reimbursable medical expenses must be intended primarily to alleviate or prevent a physical or mental illness. Cosmetic or "general health" expenses are not qualifying medical expenses 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 may be reimbursable without a prescription. 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 prescription for reimbursement, a Letter of Medical Necessity must be provided to the insurance company from a health care professional licensed in the state in which they are legally practicing. The Letter of Medical Necessity must include the following required information: the name and quantity of the medical item and the duration of treatment. The duration of treatment 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 occurs through one of the following plans: Medicare Part B, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Section 105 Plans, and standard medical care plans. These medical care plans are regulated by the government and by the company that provides the plan. The reimbursement plans for medical expenses are briefly described below.

Medicare Part B

Medical Treatments

Medicare Part B covers durable medical equipment (DME) expenses. DME expenses are for medically necessary items that your doctor prescribes for you to use at home. To qualify as DME, the item must be used to treat or alleviate a medical condition, 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 DME suppliers that accept Medicare. Both your DME supplier and your doctor must be enrolled in Medicare. Medicare will not reimburse your expenses if they are not enrolled.

If you meet the requirements for Medicare Part B, Medicare will reimburse you up to 80% of the Medicare-approved cost of the DME minus your deductible for Medicare Part B. Additionally, Medicare Part B may require that you purchase or rent the equipment.

Health Savings Accounts (HSA)

Health Savings Accounts allow you to contribute money to your HSA through enrolling in a Qualified High Deductible Health Plan. These plans also sometimes are referred to Section 125 Plans or Cafeteria Plans. An HSA allows your employer to deduct from your salary a specified amount of money that is intended to pay for medical expenses. This money is deducted from your pre-tax income. To be eligible for an HSA, you must be financially responsible for the first $1,300 of your eligible medical expenses as a single adult or $2,600 for family coverage. Any amount of money contributed to an HSA is deducted from your pre-tax income. No requirement mandates the use of your HSA contribution by a specific date; however, there is a cap on how much money you can contribute 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. Qualifying expenses include both medical and dental expenses. OTC 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 dependents who you claim on your taxes up to the age of 26 years.

Flex Spending Accounts (FSA)

Flex Spending Accounts are accounts in which you can put money that is deducted from your paycheck. Like the HSAs, FSAs are also taken from your pre-tax income. You do not pay Federal, State or FICA taxes on money put into your FSA. Your gross wages, Social Security wages, and Medicare wages will be reduced on your taxes by the amount of money that you contributed to your FSA during the calendar year. A signed salary redirect agreement is required each year that you contribute to an FSA. You also must choose an amount of money to contribute to your account during the plan year. Both the salary redirect agreement and amount of money to be directed to the FSA must be submitted before the plan year begins. The amount of money that you contribute cannot be rolled over from year to year. Some FSA plans allow for an additional time period after the end of the plan year to use the money from the previous plan year. Other FSA plans require you to use all the contributed money within the plan year. The entire amount of money that you contribute is available for reimbursement to you the first day of the plan year; therefore, you will not be allowed to make changes to that amount during the plan year unless you have a change of family status.

Health Reimbursement Arrangement (HRA)

Health Reimbursement Arrangements 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 typically covered by health insurance. Employers who have an HRA plan reimburse their employees directly 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; however, employers may limit reimbursable expenses in any way that they choose. Reimbursable expenses are defined under IRS Section 213d. 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 pre-tax reimbursement of personal health insurance expenses to their employees. MERP's are group health plans that must comply with the Affordable Care Act (ACA) and associated regulations, such as PHS 2711 (prohibition on annual limits), PHS 2713 (preventive care), and various new administrative requirements. Because traditional employer-provided health insurance is too expensive, many small businesses opt for a MERP. The average amount of savings for participants is 50%, meaning a 50% savings for the employer.

Below is a chart summarizing the differences in four of the most common 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.







Photo of Burt Cancaster
Burt Cancaster, Author


Vitality Medical
7910 South 3500 East, Suite C
Salt Lake City, UT 84121
(801) 733-4449
[email protected]


Burt Cancaster Profile

Dennis January 3, 2017 at 3:47 PM
Hey Burt, it will be a major issue as we find out more about what medical expenses are reimbursable. Even in the medical device industry trends, the costs are rising but individuals can't afford them. Thanks for this informative post.