Date Expense Incurred

[Guest SteveP]

Suppose an employee visits an optometrist late in December, is examined, and orders new contact lenses paying a $225 deposit. The FSA plan's year is CY-based (i.e., Jan through Dec). The employee subsequently receives the lenses in February and pays the remaining $200. Referencing IRS Code, the plan specifies that an expense is "incurred" on the date when the underlying services giving rise to the medical expense are performed and not on the date that the services are billed and or paid. Using this logic, any subsequent purchase of lenses in CY 02 not precipitated by an exam would likewise be the result of the CY 01 underlying service and not a qualified expense. However, if the statutory or case law stipulates that an expense in "incurred" when the item or good is provided, would the entire $425 or just the $200 be categorized as a qualified expense for CY 02?

Thanks

[mroberts]

you'll have to check your spd as to when the vision carrier would deem the service complete. obviously this is something that couldn't have been done on one trip since the lenses had to have been picked up and maybe even fitted if this was the first time someone has worn contact lenses. what does the eob from the carrier indicate as the date of service? if all $425 was billed in december then you would definitely count this as a 2001 expenses. if the eob indicates the date of service was in february, then it's 2002. if there's two eobs, billing part of the amount in 2001 and another part in 2002, find out what was actually performed, if anything in 2002, and check your spd for clarification.

[GBurns]

It probably does not really matter what the SPD says partially because it most likely would be both ambiguous and in conflict with other items. Decisions would have to be in favor of the employee.

It might also not really matter what the Proposed Treas Regs state in light of the many court decisions regarding their lack of legal weight.

What might matter most is what the employee wants and was expecting. tTe case that you have outlined might be influenced by the funding of the FSA. Was it all employer money or was some employee money? If there is employer money, can it be rolled over from one year to the other? Is this what is being used to reimburse the employee?

This case is almost identical to the Grande v. Allison Engine, with part in one year and part in the next year. You might want to take some guidance from this case.

The end result is that the Court once again favors the employee over, as they put it, "merely" Proposed Regs or ambiguous SPDs..

[GBurns]

It probably does not really matter what the SPD says partially because it most likely would be both ambiguous and in conflict with other items.

It might also not really matter what the Proposed Treas Regs state in light of the many court decisions regarding their lack of legal weight.

What might matter most is what the employee wants and was expecting. the case that you have outlined might be influenced by the funding of the FSA. Was it all employer money or was some employee money? If there is employer money, can it be rolled over from one year to the other? Is this what is being used to reimburse the employee?

This case is almost identical to the Grande v. Allison Engine, with part in one year and part in the next year. You might want to take some guidance from this case.

The end result is that the Court once again favors the employee over, as they put it, "merely" Proposed Regs.

[Guest SteveP]

The FSA is all employee withholding and the FY01 funds have been depleted. While the case is similar to Grande v. Allison Engine, wherein services provided in one year were allowed to be reimbursed with the following year's funds, that case hinged on the ambiguity of the term "incurred" as defined in the plan and referenced regulations. Moreover, the services were provided in the previous year and in most situations, the plan administrator would be correct to refuse payment. What I was hoping to elicit was some discourse on the issue of service vs goods or items. I don't think anyone questions (in most situations) the issue of refusing payment in one plan year, using that plan year's funds, for a service provided in a previous year. However, as detailed in the original post, the salient point here is when should the expense of a good or item be defined as "incurred?" Is it when the item is delivered, ordered, invoiced, or the medical service that precipitated it performed?

Thanks in advance for any input.

[mroberts]

As indicated in my original post, this would be defined in the vision SPD. There should be a little blurb somehwere indicating that the service is incurred when services are provided or something along those lines. If you can't find it, I would touch base with your vision carrier.

[papogi]

My interpretation of the regs in regard to this hinges on the fact that the eye exam and the purchase of contact lenses do not necessarily have to happen together. The eye exam that occurred in December is an expense reimbursable through that year's FSA. This is the "service giving rise to the medical expense", the medical expense being the charges for the exam only. The contact lenses purchased in December are also that year's expense. Regardless when they are delivered, the employee made the decision to purchase them in December, took the initial expense to purchase them in December, thus incurring the charge in December. The incurred date for the purchase of products (e.g. contact lenses, lens solution, etc.) is not tied to the day the diagnosis of a health condition or problem is made. The subsequent purchases of additional lenses in the next year, even though they are based on the prescription from Decmeber, are charges incurred during the current year. The day you go into a drug store to purchase contact lens cleaner is the day you incur that charge. The incurred date for the lens cleaner is not the day the eye problem was discovered by the optometrist. I hope I'm understanding the original aim of your question.

[mbozek]

I have always understood that the cost is incurred when the services are performed. For example it is a settled principle under the rules for individual income tax that a tax payer can only deduct as a medical expense the cost of the services performed/goods purchased in the tax year. For example a if a taxpayer prepays $3000 for orthodonic work for a dependent but only $2000 of service are performed by year end the deduction is limited to $2000. If the services are performed by year end the taxpayer can make payment by Dec to claim the deduction. It seems to me that the services incurred in 01 are a charge against the plan for 01. The cost of the lenses in Feb 02 can be a separate charge for goods purchased in 02. However u should review the contract for the services to see if there is a separate charge for the lenses or whether it is a bundled charge. If it is a bundled charge and the employee only picks up the lenses in Feb 02 then all the charges were incurred in 01. It is my understanding that many optometrists use bundled service contracts to allow employees to drain the FSA aco****s at year end.