2003 Expense

[Guest Darla K]

I have a client who is on a bi-weeekly payroll cycle. Her first payroll cycle is January 3, 2003 and the next payroll cycle is not until January 17, 2003. She has sent a claim to our office for reimbursement for a surgery scheduled on January 8, 2003. The claim has all the information needed for reimbursement, including date of service, provider's name, and total expense. She is telling us that she needs the full amount up front to pay for the surgery

After reviewing the plan document, we found no exact answer as to when we can pay for the expense. So we are wondering if we can we reimburse her for the expense on January 3, 2003?

[Guest alawyerinblack]

An amount may not be "reimbursed" under a cafeteria plan until it is actually expended. This answer is provided in Prop. Reg. 1.125-2, Q&A 7(B)(5). with the relevant sentence in boldface.

(5) Claims substantiation. A health FSA may reimburse a medical expense only if the participant provides a written statement from an independent third party stating that the medical expense has been incurred and the amount of such expense and the participant provides a written statement that the medical expense has not been reimbursed or is not reimbursable under, any other health plan coverage. Thus, for example, as with any other flexible spending arrangement, a health FSA cannot make advance reimbursements of future or projected expenses. In determining whether, under all the facts and circumstances, employees are being reimbursed for inadequately substantiated claims, special scrutiny will be given to other arrangements such as employer-to-employee loans that are related to the employee premium payments or actual or projected employee claims.

[Lisa Hand]

One note, as indicated in the cite - reimbursement under 125 is for incurred expenses, which is defined as the service being provided to the participant or their eligible dependents, not when formally billed, charged or paid for (Prop. Treas. reg 1.125-4, Q/A-7). "expended" implies the expense has been paid, which is not accurate or a requirement of the regulations. The expense can be reimbursed once documentation of the actual service, less any insurance payments is provided along with the participant's formal request. Documentation of futute service is an estimate does not meet that requirement.

The type of procedure needs to be considered as well. Since she is stating her provider is requiring up front payment, unless she does not have any insurance coverage or it is a procedure such as laser eye surgery, not normally covered by insurance, you need to evaluation carefully if the procedure is medically necessary as opposed to cosmetic.