FSA Distribution

[Guest Benefit Specialist]

I have an employee who was given wrong information by the TPA and based her annual election on the wrong information. I know that employees can only change their election with a change in family status. No change has occurred and the TPA will not process the claim how they told the employee they would. Here's the example and if you can provide suggestions, I would appreciate it. She was told that orthodontia could be submitted as a one time lump billing and then reimbursed accordingly. Now the TPA says it can only be reimbursed over the entire time period of the braces being on ie 24 months. Is the taxpayer liable if the TPA would process anyway? Thank you for your guidance.

[QDROphile]

Since when is the TPA the boss? The employer can design the plan as it chooses. If the employer gets comfortable with compliance under a different approach to orthodotia expenses, the employer can change the terms of the plan as a last resort in a power struggle with the TPA. The employer might have to find another way to administer the plan if the dispute goes far enough to cause the TPA to resign over the issue.

[Guest jrodgers32]

Orthodontia are a reimburseable medical expense, and if she paid $5000 out of pocket for braces in the first month of the fiscal year, and her annual election is $5000, she should be able to submit the claim. see Rev. Reg. 1.125-2. Is she paying for them over a 24 month period?

In any case, if she has a bill for the whole amount or a receipt for any amount paid for orthodontia, she would have to be reimbursed up to the limit of her election.

[oriecat]

I am no expert, but the above post is not my understanding at all. When someone prepays $5000 for the orthodontia they have not actually incurred eligible expenses, as the treatment has not been received yet. Reg 1.125-2 even says this:

Expenses are treated as having been incurred when the participant is provided with the medical care that gives rise to the medical expenses, and not when the participant is formally billed or charged for, or pays for the medical care.

That's why, to my understanding, plans pay back the orthodontia expenses in periodic payments to coincide with the actual treatment being received, despite the prepayment.

[papogi]

The Harry Beker of the IRS clarified ortho several years ago via an Information Letter and said that a plan can reimburse the whole amount at once, or in smaller chunks based on a payment plan. The type of reimbursement was entriely up to the plan.

[Guest b2kates]

harry Beker's comments were informal at the August 2001 Employer’s Council for Flexible Compensation meeting. Essentially it is upto the plan design to make a lump sum payment or spread it out over the course of treatment

[oriecat]

Ahh, interesting... thanks!

Do you recall the reasoning for his position on that?