Are claims incurred prior to enrollment in plan eligible for reimburse

[Guest Tara Aguilar]

I have an employee who insists that he should be reimbursed for services that were incurred before he became our employee. He has asked that I point to the section of the IRC that prohibits this. My position is that allowing reimbursement for claims incurred prior to enrollment would eliminate the required "risk" in participation, making it ineligible for pre-tax status. Is there anything else I can refer to?

[Joe Priselac]

Tara,

There is a rule in the Proposed Treasury

Regulations for Section 125 Q/A 7©covering the rules for Health Flexible Spending Accounts(FSA)called period of coverage. Basically it states the period of coverage is to be for a period not to excede twelve months and that claims must occur during this period of coverage in order to be reimbursed. The treasury takes the position that a health FSA is a form of insurance coverage funded by employee contributions.Common sense would indicate that an insurance plan is not going pay for an expense that was incurred before the insurance coverage goes into effect.Tell the employee that you don't buy fire insurance after the barn burns down and expect to collect!

[Lisa Hand]

Prop. Treas./ Reg 1.125-1, Q/A-17, "... a cafeteria plan benefit under which a participant will receive reimbursements of medical expenses is a benefit within sections 106 and 105(B) only, if under the benefit, reimbursements are paid specifically to reimburse the participant for medical expenses incurred during the period of coverage."

".. The medical expenses that are reimbursed under an accident or health plan must have been incurred during the period for which the participant is actually covered by the accident or health plan in order for reimbursements to be excluded from gross income under section 105(B). For purposes of this rule, expenses are treated as having been incurred when the participant is provided with the medical care that gives rise to the medical expense, and not when the participant is formally billed, charged for, or pays for the medical care. Also, for purposes of this rule, medical expenses that are incurred before the later of the date the plan is in existence and the date the participant is enrolled in the plan will not be treated as having been incurred during the the period for which the participant is covered by the plan."

Additionally, your summary plan description should clearly state that only expenses incurred during the Plan Year or a shorter period of participation within the Plan Year for those participating less than a full Plan Year, are eligible.

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