Saturday, April 25, 2009

"Benefit" that doesn't provide benefit

The U.S. government has allowed "pre-tax" medical reimbursement for several years now. The system allows my employer to take money from my pay before they compute and deduct the personal income tax, social security tax, etc. Those funds are placed in an "account" from which I may request reimbursement for qualifying medical expenses.

The medical reimbursement account has the effect of making some of my health care payments "tax free", stretching my health care funds further by the amount of my tax rate. That is a nice benefit, and I've used it for many years.

As an added benefit, my previous employer and my current employer both offer a Mastercard which can be used to pay eligible medical expenses directly, instead of paying them "out of pocket" and then requesting separate reimbursement.

That Mastercard seems like an ideal solution. It reduces my paperwork and it could reduce my costs by not requiring that I mail evidence for the reimbursement. It could reduce the costs for the benefits provider since they would not have to process the reimbursement evidence either.

But No, There's More (or Less)

Unfortunately, it doesn't work that way. It appears that almost every time I use the "benny card" (Mastercard to pay from the reimbursement account), the provider is required by the government to gather proof of the validity of the expense.

The sequence I wanted was:

  1. I pay a medical expense with the Benny card
  2. The provider pays the expense and deducts the expense from my account

The sequence I get is:

  1. I pay a medical expense with the Benny card
  2. The provider pays the expense and deducts the expense from my account
  3. The provider requests proof of the validity of the expense
  4. I find the receipt (by this point, several weeks old), copy and mail the copy to the provider
  5. The provider processes the receipt and decides it is valid (or not)
  6. If not valid, the provider rejects our claim and request repayment of the money they had paid

The actual sequence is worse than using the Benny card, not better!

I'm not clear on the root cause of the problem, but some of the alternatives to this sequence might be:

  • Stop requiring validity checks of expenses, accept some fraud as cheaper than the alternative
  • Declare all expenses from certain providers as "valid" (doctors, pharmacies, etc.)
  • Stop pre-tax medical reimbursements and either find another way to provide comparable benefit, or admit that the benefit is not valuable enough for the expense it creates

My moral: Be careful of unintended consequences. I doubt our elected representatives or the people who planned the pre-tax medical reimbursement system would be pleased that I have decided to never use the Benny card again, because its use is more onerous than the old reimbursement system

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