JDuns

The dollar amount (more than $10,000) cannot be absorbed by other unreimbursed medical expenses.

Assume a doctor submits a claim to an insurance company, which is initially denied. The patient appeals the denial. While the appeal is pending the patient takes an HSA distribution to pay the doctor's bill. The next year, the insurer overturns the initial claim's decision and pays the doctor. The doctor then refunds the intial payment back to the patient. My interpretation is that there is no early withdrawal excise tax on the initial withdrawal because the participant had a reasonable basis for believing that the HSA distribution was to reimburse a qualified medical expense that had not been (and was not going to be) reimbursed by insurance. I do not think that this result is changed when the insurer subsequently decides the appeal. In the year that the appeal is approved, the doctor's refund payment would be taxable income to the patient (applying analysis similar to the casualty loss rules). The refund cannot be redeposited into the HSA account (except perhaps as a funding source for otherwise permissible HSA contributions for the year). Do you agree/disagree?

I actually wonder if plans will have the opposite reaction (not widen the window for self direction but narrow it). LaRue claims he lost money because his election was not followed. The only way to ensure that all elections are properly followed, is to not let elections be made (ie, direct money for them). A plan is put in the position of being at risk for not following directions and is also at risk for following directions where the fiduciary believes that the investment is no longer a prudent investment. We all know that the fiduciaries won't be sued if they were right (and saved the participant from losses). It is all going to come down to plan drafting, policies, participant communications and general participant relations.

According to the an article I saw earlier today (web link: aishealth article), one of WalMart's medical plan for 2007 (called "Freedom Plan 2") is a high deductible health plan with a family deductible of $6,000. As you know, this exceeds the maximum permitted deductible for HSA compatible plans, which is $5,650. I am hoping that the plan description in the article is incorrect. However, in case the deductible is indeed too high, someone with a contact at WalMart may want to warn them that HSA contributions would generally not be permitted for any participant that elected Plan 2 for next year (unless the deductible is changed to not exceed the $5,650 threshhold).

We all know that a plan sponsor may cover PREVENTATIVE prescription drug coverage below the deductible without endangering the HSA eligibility status of a plan participant. My question is what is a "Preventative prescription drug"? IRS Notice 2004-23 sets the standard as "any service or benefit intended to treat an existing illness, injury or condition." The IRS had requested comments on "the extent wo which drug treatments, either solely by prescription or as part of an overall treatment regimen should be treated as preventative care and the appropriate standards for differentiating between drug treatments that would be considered preventive and those that would not." I have not been able to locate any further guidance on the definition of preventative prescriptions. Various PBMs have different interpretations of what prescriptions are "preventative" under this standard. If the IRS later determines that a plan has reimbursed something as preventative that did not qualify, is the whole plan no longer a HSA compatible HDHP? Any assistance would be appreciated.

On Thursday, July 6, 2006, Pennsylvania became a conforming state (employee and employer HSA contributions are now not taxable). I don't have the bill number and the enrolled version has not yet been put on the legislative website but the press release is at http://www.governor.state.pa.us/governor/c...15&q=448318

Federal law 104-95 passed in 1996 provides that no state can tax retirement plan distributions to a non-resident if the distribution is one of a series of periodic distributions over at least 10 years.

I found it - in 1996 Federal PL 104-95 provides that no state can tax retirement benefits paid to a resident of another state if the payment are made in periodic installments over 10 or more years.

I recall a federal statute was passed several years ago that prohibits the state of employment (state 1) from continuing to tax the benefits paid to retirees who have moved out of the state (to state 2). Unfortunately, I can't put my hands on the statute. What I can't recall is whether the installments have to be paid over "more than 10 years" or "10 or more years." Can anyone help?

It could be that, because the EOB will show remaining family deductible, the EOB will tip-off to the custodial parent that the ex-spouse is incurring significant medical bills. That disclosure of the fact of treatment could be deemed a disclosure of PHI. I would recommend that the employee sign an authorization for the disclosure and be greatful that your TPA is administering the HIPAA privacy rules so thoroughly. I have long held the opinion that with coordinated deductibles it is not possible to sufficiently scrub the fact that services were rendered to avoid the disclosure.

I recall a federal statute was passed several years ago that prohibits the state of employment from continuing to tax the benefits paid to retirees who have moved out of the state. Unfortunately, I can't put my hands on the statute. What I can't recall is whether the installments have to be paid over "more than 10 years" or "10 or more years." Can anyone help?

I would say that the plan trumps. A plan must be operated in accordance with its terms (or be disqualified) and any amendment that would take away participation to which an individual was entited prior to the amendment would be a prohibited cutback. The best citation I could give would be Microsoft v Vincenzo which found that (misclassified) independent contractors (whose contract clearly described that they were not entitled to benefits in exchange for more cash compensation) were still entitled to those benefits because they were employees that were not excluded from participation under the terms of the plan.

As of today, the 5 year cliff is still permitted for profit sharing contributions. That said, there is legislation currently pending that would require all contributions in DC plans to vest using the top heavy schedule (over 3 years).

If his comp were $91,000 for 2004, he would be an HCE for 2005. The applicable comp threshhold is the 2004 limit not the 2005 limit.

It depends on the recipient's plan. Just because a plan allows in service distributions for regular 401(k) contributions or for regualr Roll-in contributions, the plan is not required to allow in service distributions for Roth 401(k) roll-in contributions. Many plans will not allow any in-service distributions for Roth accounts because of the complexity in tracking the "investment in the contract". Since a roll-in contribution will not necessarily be all tax-free on distribution (depending on the age of the contributions when rolled in and whether the contribution was rolled directly from the other plan or within 60 days by the participant), many plans will not want to bother with the recordkeeping issues. I come out that the in service distribution option is permitted but not required.