Orthodontia and the FSA

There has been much confusion, and even frustration, for FSA participants on the topic of how orthodontia claims can and should pay out. NBS has done extensive research and documentation to assist on streamlining the process.

There are two options a participant of an FSA or Limited FSA can choose from:

Option 1 – The Upfront Method.

Under IRS regulations, FSA funds generally cannot be used before services have been received.  An exception to this rule is for orthodontia expenses that the employer permit to be prepaid in their cafeteria plan document.  In other words, an employer is not required to reimburse participants for orthodontia services in advance of the participant receiving the services. If the document does not state that it is allowed, employees must choose option 2.

If the document does allow upfront orthodontia, the participant must submit a claim form, the receipt of payments, and a copy of the financial contract between them and the orthodontist showing:

1. The name of the person receiving the treatment;
2. A description of the treatment;
3. The beginning date of the treatment;
4. The ending date of the treatment;
5. The contracted amount;
6. The amount paid by the participant; and
7. The date payment is or will be required to be made.

Participant should know that with the upfront method, orthodontia services are deemed to be incurred when the participant makes the advance payment, not when the participant receives the services. In other words, they will only be allowed to make a one-time lump sum payment for the braces. For example, if a participant has elected $2,700 for the 2019 plan year and the total amount owed on the braces is $5,200, they could make a one-time payment of $2,700 (so long as that is how much is in the account at the time of the expense). This would leave a balance of $2,500 that the participant would not be allowed to pay with future FSA funds even if the braces are still on during 2020 or subsequent years.

Option 2 – Payment Plans.

If the plan document does not permit upfront orthodontia the orthodontia claim must be paid out like other medical FSA claims. The participant must submit the financial contract between them and the orthodontist. The contract must show the following:

1. The name of the person receiving treatment;
2. Description of the services being rendered;
3. The beginning date of the treatment;
4. The ending date of the treatment;
5. The total contracted amount;
6. Scheduled monthly payment amount; and
7. Total amount of first payment (including any initial fees or down payments).

This option gives the participant a chance to be reimbursed for the full amount of the contract, which will generally take multiple years.  Most contracts will have a large portion of the price associated with putting the braces on, sometimes called banding, and the remainder of the contract will be incurred with subsequent adjustments to the braces.  For example, if the total amount of the braces was $5,200 and the initial banding fee on the contract is for $2,000, the remaining amount of $3,200 can be scheduled for monthly payments over the duration of the braces. If the braces will be on for 18 months, the contract should show that the participant will pay $177.77 per month for 18 months after they make the initial payment of $2,000.

Another scenario for this option could be as follows:

Employee participates in a healthcare FSA in 2017 and 2018 and elects $2,500. In February 2017, employee signs an agreement with an orthodontist to fit braces onto participants daughter’s teeth in March 2017, and treatment is estimated to be 18 months in duration. For these services, the orthodontist will charge $2,000, payable with a $500 dollar down payment and $100 monthly installments. Employee would be able to claim $1500 in 2017 (the $500 banding fee plus $100 per month from March 2017-December 2017), and $500 in 2018 ($100 per month from January 2018-May 2018), or up to the employee’s remaining balance for each year.

To simplify the process, NBS has created a fillable orthodontia contract that participants may take to their orthodontist to complete and sign. Employee can also submit a contract created by the orthodontist if it contains the information NBS needs to process the claim.