A common question we receive at Zane Benefits is:



IRS Notice 2006-69 "clarifies certain substantiation methods and requirements that apply to all medical reimbursement plans whether or not a card is used" for self-insured medical expense reimbursement plans (i.e. HRAs and health FSAs).

If the employer is provided with information from an independent third-party (such as an explanation of benefits from an insurance company (EOB)) indicating the date of the § 213(d) service and the employee’s responsibility for payment for that service (i.e., coinsurance payments and amounts below the plan’s deductible), the claim is fully substantiated without the need for submission of a receipt by the employee or further review.

Example. Employee D is a participant in the health FSA sponsored by Employer X and is enrolled in X’s medical plan. D visits a physician’s office for medical care as defined in § 213(d). The cost of the services provided by the physician is $150.00. Under the medical plan, D is responsible for 20% of the services provided by the physician. X has coordinated with the medical plan and X or its agent is automatically provided with an EOB from the plan indicating that D is responsible for payment of 20% of the $150 (i.e., $30) charged by the physician. Because X has received a statement from an independent third-party that D has incurred a medical expense, the date the expense was incurred, and the amount of the expense, the claim is substantiated without the need for D to submit additional information regarding the expense. D has sufficient FSA coverage for the claim, which was incurred during the coverage period. X’s FSA reimburses D the $30 medical expense without requiring D to submit a receipt or a statement from the physician.

For example, a health FSA or an HRA does not satisfy the requirements of § 105(b) if it reimburses participants for expenses where the participants only submit information (including via internet, intranet, facsimile or other electronic means) describing medical expenses, the amount of the expenses, and the date of the expenses, but does not provide a statement from an independent third-party (either automatically or subsequent to the transaction) verifying the expenses. Under § 1.105-2 of the regulations, all amounts paid under a plan that permits “self-substantiation” or “self-certification” are included in gross income, including amounts reimbursed for medical expenses whether or not substantiated. 

Colorado General Assembly Passes Senate Bill (SB) 11-019 Encouraging Defined Contribution Health Plans and Health Reimbursement Arrangements (HRAs).

Note: None of this should be taken as legal or tax advice.

10-16-105.2. Small employer health insurance availability program. (1.5) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, A SMALL EMPLOYER THAT DOES NOT HAVE, AND HAS NOT HAD IN THE PREVIOUS TWELVE MONTHS, A SMALL GROUP HEALTH BENEFIT PLAN PROVIDING COVERAGE TO ITS EMPLOYEES UNDER THIS ARTICLE MAY REIMBURSE AN EMPLOYEE, WHETHER THROUGH WAGE ADJUSTMENTS OR HEALTH REIMBURSEMENT ARRANGEMENTS, FOR ANY PORTION OF THE PREMIUM FOR A HEALTH COVERAGE PLAN.

This should not be taken as legal or tax advice.

Eligible self-employed individuals can use the self-employed health insurance deduction to reduce their Social Security tax in addition to their income tax liability for the 2010 tax year.

Health Insurance Deduction Reduces Self Employment Tax  In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

Health Care Reform Requires Agents to Develop a Direct Relationship with Each Employee

Until recently, employer health benefits meant a single group policy covering each employee and their dependents with the same benefits. Today, more and more employers are allowing employees to choose their own individual or family policy and pay for it with pre-tax defined contributions and/or pre-tax salary reductions.

“The fire of employers switching from group policies to employer-funded individual policies started before 2010,” says economist Paul Zane Pilzer, author of The New Health Insurance Solution, “But then along came health care reform which has had the effect of pouring gasoline on this fire.”

This is especially true in the small employer group market, says Pilzer, where several insurance companies have strategically chosen to exit the small group market and increase sales in the individual market.

“Insurance companies in the small employer group market were trapped between a rock and a hard place, stuck between rising medical costs and state limits such as rating bands on small group premiums. Now,” says Pilzer, “insurance carriers can retain customers by switching them to more profitable individual policies funded by employer-sponsored defined contribution health plans.”

The premium rates on individual plans are regulated differently in most states, and, unlike group plans, private carriers are allowed to reject high-risk employees with medical problems. However, new regulations require states to provide guaranteed coverage (at higher rates) for employees with medical problems that were formerly covered by a terminated group plan. Additionally, a new temporary federal risk pool, PCIP, has been created for the individuals who do not qualify for guaranteed-issue individual plans in their state. 

Click here to read the full press release.