What’s an HSA and how will it affect my practice?

By Mark Evans, BS, LAc, Chair: AAAOM Insurance Committee

Let’s say you have a patient who comes in and says, “Can I use my Flex Account here?” This has probably happened to you. How do you navigate the maze of Cafeteria plans, MSAs, HSAs, FSAs, and HRA accounts? How can you best serve your patients who wish to use these tax-advantaged accounts?

All of the plans discussed here offer some type of tax deferment for medical expenses that is regulated by the Internal Revenue Service (IRS). Since they all involve tax deferment, the plans are administrated by the employer or a contractor and subject to random IRS audit. This leads to a non-uniform set of standards of documentation for treatments.

Cafeteria plans were developed in 1978 and designed to allow employers to offer different types of tax free healthcare benefits to their employees. One part of a cafeteria plan, called a Flexible Spending Arrangement (FSA), can be used to cover medical expenses that would not be reimbursed by the insurance plan. You will hear the term “Flexible Spending Account” (FSA) used more often than the term “Flexible Spending Arrangement” (FSA). The two terms have the same meaning. The IRS uses the latter in its regulations. There are different types of FSAs, and they are notorious for the “use it or lose it” policy, which means that at the end of the year, any unused funds in the FSA are forfeited.

Another term that arose from the Cafeteria plan is Health Reimbursement Arrangement or Health Reimbursement Account (HRA). These two terms are used interchangeably, with the IRS favoring the word “arrangement.” The primary difference between this and an FSA is that the employer is the only entity that can contribute to this account.

In 1996, the first federal Medical Savings Accounts (MSA) were created as a way to defer taxes for medical expenses. A person could set up a trust account that would be tax free and could be used to pay for medical expenses. In 2003, a new type of account, the Health Savings Account (HSA), with a similar purpose, was created. HSAs were designed to ultimately replace the obsolete MSAs. When an individual deposits money to an HSA it is also tax free and must be used for medical expenses. The IRS defines the expenses that qualify for reimbursement.

So we now have a catalogue of terms that your patients will use. Many will claim that their account is unique and requires special handling, such as use of a debit card to process the transaction or a receipt where ICD codes are specified. The types of accounts listed above have little to do with how they are used at the clinic level. Acupuncture and medically necessary massages are eligible expenses under all of the above plans as determined by IRS regulations. (Though the IRS allows reimbursement for preventive care, certain FSAs exclude coverage of preventive care and therefore may require a documented condition.)

The variations are always at the level of how the plan is administrated. The IRS offers little guidance on how these plans are to be administrated. Much like preparing your income taxes, the IRS says little about how you organize your books and keep your receipts; there is just a vague notion that should you be audited, a certain level of documentation is expected. The same principle applies to the administrators of these health plans. Many will be very cautious and require significant documentation, while others will be more flexible and require little documentation. Many of these administrators will issue a debit card (looks like a credit card) that can be used for medical expenses. Some acupuncture clinics in the past have encountered difficulties with these cards. It is important when you set up your merchant account for taking credit cards that you declare yourself to be a healthcare facility. (If you are not taking credit cards right now the AAAOM can direct you to a merchant carrier that will offer AAAOM members a discount.)

For some a simple receipt will suffice, others will require a superbill which contains at a minimum: office name, address, phone number, license number, date of service, ICD code for condition treated, and CPT codes for procedures used. When issuing a receipt the client pays at the time of service and gets reimbursed using the receipt you issued.

Don’t miss out on your Christmas bonus this year. The FSA’s all expire at the end of the year (with a short grace period), so patients will appear in a FSA friendly clinic in December to empty their account.

For more information about pre-tax medical accounts go to www.irs.gov.