Do you know how much you spent last year on medical expenses? Do you care? Well, you should. Why? Taxes! The word recounts a time every spring when you need to organize your finances. Though, it’s probably not most people’s favorite time of the year (well, if you’re a CPA you may feel differently), this year may just be a chance for you to get some extra money on your return. It’s time to put that shoebox full of medical receipts and EOBs to work for you and your family (and hopefully save some dollars along the way).

While taxes can be intimidating, medical tax deductions don’t have to be. Itemizing your medical expenses to reduce the amount of taxes you owe is as simple as pulling together your receipts for payments and totaling the amount you paid in a given year for medical services, procedures, equipment, prescriptions, insurance premiums, and mileage. While it doesn’t necessarily sound like
“medical” terminology, dental expenses, vision expenses (glasses, contact lenses, exams), and hearing aids are even considered medical expenses for tax-purposes. Remember, you cannot deduct any of the expense covered by the insurance company, but you can deduct your co-pay and other out-of-pocket fees.

Yes! That’s right! Your medical expenses are tax deductible if they exceed 7.5% of your AGI (we will tell you about that later). To help you get started, a complete list of items that can be deducted is available at the end of this guide or go online to http://tinyurl.com/7la5t8

Finding Out If You Qualify

In order to qualify for a deduction, your medical expenses paid by you in 2008 have to be 7.5% or more of your Adjusted Gross Income (AGI). Your AGI is your income minus any adjustments from a 401k or other qualified investment (this would include your Health Savings Account contributions for the year). AGI is the last number at the bottom of your 1040 form.

Here’s an example: let’s assume your AGI for 2008 is $40,000. In order to benefit from claiming your medical expenses as part of your itemized deductions (instead of the standard deduction), the medical expenses you paid would have to be $3,000 or more.

Next Steps

Here’s what you need to do to take advantage of the deduction:

• Collect your receipts for all of the medical expenses paid in 2008 for you and your dependents.
• Organize receipts by each doctor, each hospital, each pharmacy, etc.
• Total the amount you personally paid to each of the providers.
• Multiply your AGI by 7.5% and compare to your total expenses.
• If your expenses are greater than 7.5% of your AGI, fill out IRS Schedule A form (found at http://www.irs.gov/pub/irs-pdf/f1040sab.pdf)
• Include the form with your tax return.

Additional Tips and Info

A commonly overlooked expense is Transportation. For 2008, mileage for the purpose of receiving medical care was deductible at 19 cents per mile for the first half of the year and 27 cents per mile in the second half of the year. Even if you just traveled locally, the miles can really add up, and might be the thing that puts you over the 7.5% threshold, so be sure to consider your allowable mileage, as well as any parking and/or airline flight expenses you may have incurred for medical care.

There are tools available to help you organize and track expenses throughout the year. One we are very familiar with (and it’s free) can be found online at www.changehealthcare.com. Here you can track your ongoing medical care and payments. At the end of the
year, use the reports section, select “All of 2008 in One Report.” And you’ll be ready to tackle your tax preparation … well at least this aspect of your taxes! Don’t you wish it was all this straight forward? Don’t just take our word for it, check it out at www.changehealthcare.com.

NOTE: In addition to all of the allowable deductions, there is an equally long list of expenses that are NOT deductible. For that list and more information, check out the IRS website at http://www.irs.gov/publications/p502/index.html. Both lists are on the next page of this document.

FURTHER NOTE: We’re not accountants, and we’re definitely not your accountant. Check with yours to be sure you qualify and file properly.

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A lot more goes into calculating your healthcare expenses than meets the eye. Unfortunately, most insurance companies fail to break the transaction down into simple math and explain how they got to what you owe. Here are the basics of EOB math.

The Basic Math

The key to understanding comes down to identifying four numbers: the provider charges (amount billed from doctor, hospital, etc.), the discount (which is based on the negotiated rate of your individual plan coverage), what insurance paid and patient responsibility. Insurances may call them different things, so we’ll describe those in a little more detail.

The amount the provider sent to your insurance company as their “charge” or “billed amount” should be the largest figure on the EOB. Next, find and subtract the “discount” to arrive at the allowed amount. This is the amount your insurance company and your provider agree is the fair amount to be paid.

Remember some insurance companies give you the full math. They may show you the discount, and then show you the resulting allowed rate, which should be less than or equal to the charged amount. Other companies only display the allowed amount and do not show the network savings or discount.

Patient Responsibility

Now look at the amount your insurance paid. It can be anywhere from $0 to the full allowed amount. Subtract what the insurer paid from the allowed amount. What’s left is the patient responsibility. To double check the math, add together the amount the insurance paid and the patient responsibility, it should equal the allowed amount which is sometimes referred to as the negotiated rate.

What do you owe?

The patient responsibility may NOT be the balance owed to your provider, depending on if the insurance company reflects your payments (including co-pays, pre-payments and any other payments you have submitted). If payments you have previously made (or will make) are NOT reflected on the EOB, you will need to subtract your payments from the patient responsibility amount to figure out the balance owed to the provider.

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We’ve all heard of identity theft, and many of us have had the miserable experience of having a credit card stolen. Medical identity theft is similar and can be just as serious. Though medical identity theft is fairly uncommon (about 250,000 people experienced it in 2005*), it is difficult to repair and typically leaves a trail of falsified information that can plague medical and financial lives for years.

Medical identity theft occurs when someone represents themselves as you for the purpose of receiving medical treatment and incurring the expense for the services in your name. Someone within the healthcare system could also use your medical identity for financial gain. Either way, the effects can potentially impact your finances, your insurance coverage and your health.

Medical records are fairly comprehensive and permanent, so having the wrong medications and procedures listed, as part of your medical history, can be confusing for any provider you encounter in the future. It’s important to protect against medical identity theft and act promptly and aggressively if it occurs.

Know How to Protect Against Medical Identity Theft
The first indication that you’ve been a victim of identity theft is the arrival of unexpected bills, EOBs or collections phone calls. To protect from this happening:

• Do not allow your insurer to use your social security number as all or part of your account ID. Your social security number is the key into your protected identity.
• Service dates are important. Keep a record of the days you went to the doctor and received treatment.
• Evaluate bills and statements from providers. Anything that looks odd, question it. Medical billings are fraught with errors anyway, so reviewing the bill has the added benefit of possibly catching errors that affect your costs.
• Open and read your EOBs. If you think a service date or charge is not representative of care you or a family member received, or you do not recall seeing a provider you are being billed for, call the provider and your insurer to clarify any confusion.

It’s Happened. Now What?

• Call your insurer AND send a letter to the insurance company stating you suspect medical identity theft. Be sure to provide copies of all documentation.
• Request all records related to the claim(s) from your provider. This can be the most challenging part of the process. Some of this will be trial and error to find the source of the fraudulent activity. Once you are relatively certain the claim is fraudulent, inform them by calling AND in writing.
• If the charge involved your credit card, inform your credit card company of the fraudulent charges.
• Contact your local law enforcement. They will direct you to the appropriate authorities. Be aware that identity theft can be a federal offense.
• Document all conversations – insurer, provider and law enforcement. Who you talked to and when. Keep asummary of what was said.
• Any information you share with another party, be sure to keep a copy of everything for yourself.
• Check your credit rating and put a lock on your credit. Many companies provide this service. This can help to alert you when someone is checking on your credit history and assist in tracking the source.
• Follow up your communications with the provider, insurer and credit companies until you have written assurance from all parties that you will not be held liable for claims and associated charges.
• Be vigilant. If it happened once, watch out for more instances.

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Your insurance company paid your provider and you have paid your patient responsibility. So why
are you still receiving a bill? Well, you may have been balance billed. Balance billing occurs when a provider (doctor, hospital, clinic, etc.) bills a patient for the portion the insurance company “writes off” or discounts.

Let’s consider an example: The patient goes to the doctor for a procedure billed at $400. The insurance company has a negotiated rate or “allowed amount,” set through a predetermined contract with the provider, which agrees to a comprehensive payment of $250 for this procedure. The insurance company paid the provider $225, leaving you with a patient responsibility of $25.

A provider has balance billed you when they attempt to recoup some of, or all of the entire “network” discount. The best way to confirm whether or not you have been balance billed is to follow the paper trail.

Things to Remember

• Each health plan has different negotiated rates with providers. This is a result of their contractual agreements, which designate the provider as “in-network.”
• Balance billing, is an illegal act (in most states) and only applies to “in-network” providers. “Out-of-network” providers, those that do not have contracts with your insurance company, are not required to accept the insurance companies “write-off” or discount.
• Document all conversations, with your providers, insurers and law enforcement. Also make sure you keep a copy of the paperwork (bills, EOBs, payments) for your records.

What To Do If You Suspect You Have Been Balance Billed:

Step One: Gather all of the bills, EOBs and payment information associated with the provider and service(s) in question. This will help you to double check the math. See if the amount you are still being billed is representative of the network discount.

Step Two: Contact your insurer. They can help you to confirm the math, plus they will want to know if the provider is balance billing. Oftentimes, insurance companies have specific processes to handle this type of issue. If you are a Medicare beneficiary and Medicare is your primary insurance, call their Balance Billing Hotline at 800-899-7127.

Step Three: Contact your provider. Tell them that you suspect you have been balance billed. They may admit to it readily and make adjustments. If they do not, having already confirmed that you have been balanced billed by you insurer may provide you with the needed leverage to get the bill resolved.

Step Four: Balance billing is illegal in most states and for all Medicare claims. If you are unable to receive any help from your insurer or the provider, you may want to contact the state agency that oversees health and/or insurance. Inform them you suspect medical balance billing has occurred.

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Pre-authorization assures you and your provider that treatment has been deemed “medically necessary”
under the terms of your health plan. Most HMO policies require pre-authorization to receive coverage on non-emergent care outside of standard healthcare provided by your primary care physician. PPO policies may require it for certain procedures or specialist. As the insured, it is your responsibility to understand when pre-authorization is needed. Check your specific policy, if you are unsure.

A pre-authorization, does NOT imply that the insurance company will be covering the entire cost. Your deductible and co-pays will likely still apply. However, without pre-authorization you run the risk of being responsible for a larger portion, if not the entire cost, yourself. If you require a relatively expensive treatment or procedure, and there are any questions about your coverage, it is always better to get pre-authorization before proceeding with care.

When Do I Need Pre–Authorization?

Typically there is something going on with your health that requires additional treatment or services. For example, this may involve being seen by a specialist, surgeon or additional visits to a chiropractor. Any of these instances MAY require pre-authorization. It is critical to understand your specific coverage. The need for pre–authorization is determined by your specific health plan.

Who Will Make The Request?

The provider should submit your information to your insurer and request pre-authorization. While the physician’s office will most likely make the request on your behalf, don’t be afraid to call the insurance company and verify the authorization is complete. If a doctor’s office forgets or lets it fall through the cracks – there is a chance you will be responsible for payment.

If I Need To Make The Request, What Information Should I Include?

Pre-authorization requests generally require substantial background information such as:

• Other less costly and/or less invasive treatments that have already been tried and their duration
• Past history of the health issue including the conditions surrounding its original manifestation
• Physical documentation, such as test results, images (x-rays, MRIs, ultrasounds, photos), etc.
• Other supporting information that solidifies the medical necessity for this visit, service or procedure.

Always check with your specific insurance plan to see what information they require. Remember they are looking to validate “medical necessity.”

The Response

Every insurance company follows their own timeline, but you and the physician should get the response in writing within a couple of weeks. Remember, if your specialist is not in your insurer’s network (out-of-network provider), you may be responsible for a larger portion of the cost than for a specialist who is in-network.

What To Do If You Get Denied?

Denials are common, but they are generally accompanied by a reason for the denial. View the denial as a request for additional information and don’t get discouraged. (See the”“Denied Medical Claim” worksheet of the Field Guide.)

Managing Changes In Treatment
Changes in treatment can be an issue. For example, a treatment regimen for cancer that involves multiple drugs could be disallowed if even one of the drugs is changed and/or considered experimental. If there’s a change from what is initially authorized, be aware that pre-authorization can be revoked. Be sure to get authorization in writing from your insurer for any changes.

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Ignoring your bills is not the safest tactic. Still many medical bills get to the point of collections.
Whether you just received the first bill, or you’re on the verge of being sent to collections, settling medical debt requires planning. However, with a little communication, some inquiry and negotiation, that large medical bill can be well on its way to settlement. These steps will help you mange any large medical debt you incur. Remember, your bill or statement should provide a number to call if you have questions. Find that number – it’s a great place to start.

Step One: Check Your Bill!
Errors, more errors and inflated prices! By now most people are aware that medical bills contain errors.
Unfortunately, you cannot tell if your bill contains errors by looking at the billing summary or statement. Call the provider billing office and ask for an itemized bill, a copy of your medical chart and pharmacy ledger (shows medications you were given while in a facility) to compare the charges. It may sound like a lot of work, but it could save you a lot of money if there are errors.

• Look for repeated charges. Double check to make sure there are no charges resulting from hospital/facility error (such as a repeated x-ray).
• Look for services and supplies charged to you that you did not receive. Many treatments have “usual and customary” charges, but that doesn’t mean that your case required them all.
• Be aware that amounts like $20 for an aspirin may not be errors, rather just the inflated price of healthcare. Still, it never hurts to ask.

Step Two: Negotiate, Especially If You Are Uninsured

Hospitals and facilities want to receive payment for their services quickly, so try negotiating. First, ask the hospital billing office if they will reduce your bill (to the Medicare rate or their lowest negotiated rate), or simply make them an offer you can afford. If you can’t afford to pay the full amount, ask to pay in regular monthly installments. If the hospital/facility is unwilling to negotiate, ask about assistance programs. Most facilities have patient advocates to help individuals qualify for charitable or discounted care, or in some cases, even government assistance. This is a hidden gem that most facilities don’t promote.

Step Three: Consider Your Options

Medical debt is often considered “unsecured” or forgivable. Credit cards are considered “secured.” Financial experts know medical bills can be negotiated down. Credit card debt cannot. Once you make the decision to borrow money to cover medical debt, it is no longer “forgivable.” Be sure that you can repay the borrowed debt, otherwise it may have a more profound impact on your credit rating than medical debt. For that reason, be cautious when placing medical debt on a credit card, prioritize your bills and make sure you fully understand your options for making payments.

Step Four: Get Your Settlement in Writing

Before you make any payments, get the agreement in writing. Have their business office fax, e-mail or mail a signed statement of the agreed upon settlement. A verbal commitment from a phone conversation will be difficult to prove if you are ever asked for more money, so have a copy of all the documents on hand. Once you have the agreement in writing you are ready to pay.

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Something has happened to change the employment relationship with your employer…you’ve
been laid off, hours have been reduced or you’ve just decided to change jobs. So what do you do
about your health insurance coverage? Well you are in luck (kinda)! In 1996, as part of the HIPAA legislation, federal law was instated to cover portability of insurance known as Consolidated Omnibus Budget Reconciliation Act or COBRA. This law requires that employers continue to provide the same health insurance coverage to ex-employees for a specific amount of time, typically 18 months.

What is COBRA?
First, let’s be clear that COBRA is a law – not the insurance itself. This federal law provides you the right to continue your same insurance coverage after a job termination in most every instance except “gross misconduct.”

How does it work?
Upon employment termination, the employer is responsible to notify the health plan administrator within 30 days. Once that occurs, the health plan administrator will contact the ex-employee and provide the paperwork to select your COBRA benefits. The ex-employee will have 45 days to pay the initial premium that will retroactively start the benefits. Basically, that means if your employment ended on July 31 and even though it takes 30 or 60 days for paperwork to catch up with you, the first premium payment will start coverage on August 1.

NOTE: With the paperwork provided by the plan administrator there should be a Certificate of Coverage. Keep up with this document! When you stop the COBRA benefits to begin new health coverage, this will be an important document for you.

Who is eligible? There are three aspects of eligibility:

1. You must work for an employer with at least 20 employees
2. You must be a “Qualified Beneficiary” – which refers to the employee, the spouse of the employee and/or the dependent children of the employee. The same people that were included on the coverage before employment status changed. You can’t elect to add additional people to your plan under COBRA, but you are able to reduce the number of covered individuals. For example, a child may be able to switch to the other parent’s coverage in the interim.
3. There has to be a “Qualifying Event” – which is the event that ended the employment relationship or reduced the number of hours worked below the amount that it is too low to receive benefits.

How does the cost of COBRA compare to traditional benefits?

Remember that you have lost the status of “employee”, so you’re former company is not going to pay the same share of your health coverage. As an “employee” your benefits were a shared cost. Accessing health coverage through COBRA requires that you pay the employee portion of the premium, the employer portion of the premium and typically an administrative fee of 2%. Once you recover from the sticker shock – it’s time to seriously consider if this coverage is for you.

Things to consider.

While the cost may appear to be prohibitive on first glance, the question may be “can you afford NOT to have coverage?” If you have a lapse in your medical coverage, there is a far greater likelihood for future claims to be denied based on a pre-existing condition. It is common for an insurance carrier to look at a period of no coverage as the point in time when an ailment manifested. Do you or a family member have an on-going illness that requires continual medical supervision? Are there children or elderly people being covered by the policy? If you answer yes to any of these questions, this may be the option for you to use, at least for a short period until more permanent benefits take effect.

Note: If you had medical, dental and vision coverage while employed, you may not have to elect this rich a package while using COBRA. Each plan varies, but it may be possible to only pay for medical coverage during this period of transition.

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Comparing health plans can be confusing and time consuming. But knowing what you are looking for
and your personal health priorities can help to make the process simpler. Whether you are purchasing an individual policy or selecting a plan through your employer, assess your expected situation for the
coming year and select accordingly. Here are a few things to pay attention to throughout the selection process:

Understand what kind of organization and coverage you would like to work with. Is it an HMO, PPO, or POS plan?
At the most basic level, this will determine how you manage your provider relationships over the next year.

• HMOs are typically more restrictive and require referrals, but they generally have low out-of-pocket costs.
• PPOs are less restrictive when it comes to provider selection, however they typically have higher initial out-of-pocket costs.
• POS plans provide the largest amount of provider selection, yet typically have higher costs when you choose to go out-of-network.

Look at how the plan is financially structured and decide what is most important to you. Is it your yearly out-of-pocket costs or the deducible and premium amounts?

• Typically a higher deductible translates to a lower monthly premium.
• If the plan has co-insurance (how you and your insurance company split the balance on claims after the discount has been applied). If the co-insurance is 80/20, that means you will be responsible for 20% of the cost; 90/10 = 10%.
• If you frequent the doctor multiple times a month or need surgery – having a lower co-pay with a higher premium may make sense.
• If you rarely visit the doctor – a higher deductible/higher co-pay with a lower premium may create cost savings for you and your family.

Look at the network.

• Is there a wide selection of providers or are the options limited?
• Double-check to see if your most important providers are in-network. For example, you may decide it is important to have your children’s pediatrician or favorite dentist in-network.
• Next, check to see which local and regional hospitals are in-network (if you have multiple options).

See how the pharmacy plans compare.
This can really impact your out-of-pocket expense depending on the number of prescriptions you need.

• Do you take any maintenance medication?
• Some plans have a standard co-payment on drugs. For example, you may have a $20 co-payment unless the drug costs less.
• Other plans have lower co-payments on “preferred” brand name drugs or generics. For example, generics may be $10, preferred brands $20 and others $50.

Always read over the dental, vision and behavioral health coverage.

• There are often limits on this kind of health coverage. Some policies restrict the type and amount of coverage.
• Often supplemental coverage is needed.

Finally, remember there is always a trade-off! If you are looking to pay a lower premium, you can probably expect to have less coverage or a smaller network. If you have a small deductible, you can expect to have a higher monthly premium.

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A denied medical claim is anything but welcomed. However, knowing how to handle one if it happens
makes the process a little easier. Let’s start with some preventative measures before discussing how to
appeal a denied claim:

1. Understand your insurance policy and benefits
Knowing what your plan will and will not cover, prior to a procedure or doctors appointment, allows you to make more informed decisions about your healthcare. Depending on your carrier and benefit plan, this information will be outlined on the insurance company’s web site or is available from your HR department.

2. Know when you need to obtain pre-authorization
It is your responsibility to determine when you need to obtain pre-authorization for a procedure or doctors appointment, and to make sure you and/or your provider receives approval. You can also find this information in the benefit plan documentation or by calling the insurance company’s customer service.

How do you know if a claim is denied?
You already paid your co-payment and saw the doctor. It’s over and done, right? Well not exactly. No one particularly enjoys sorting through the paperwork after surgery or a doctor’s visit, but the confusing EOB (Explanation of Benefits) sent by your insurance company details the provider payment and how much you may still owe… or that your claim has been denied! Be sure to review the paperwork to understand why the claim has been denied. Typically, there will be a “Reason Code(s)” and explanation listed on the EOB.

How to appeal a denied claim:
If all or part of your claim is denied and you have reason to believe it should be covered, follow these steps:

Step One: Collect and organize all information pertaining to the denied claim. Make sure you have the original bill (containing the date(s) of service and the provider’s name), your EOB and your insurance card before placing a call. If the insurance company sent you a letter, have that available as well. Most importantly, review a copy of your insurance policy and know what part of the policy leads you to believe this claim should not have been denied.

Step Two: Call the number provided on the letter from your insurance company, or if you did not receive a letter, the customer service number. There is a possibility the claim was denied because of missing information. Once the missing information is provided, the claim will be re-processed and you’re done.

If this is not the cause, ask the representative for suggestions or guidelines for appealing a denial. If you need an appeal form, ask them to send one via the mail or email. Make sure you have the address for the appropriate department to return the completed appeal documents. Always keep a record of the date, time and the name of the customer service representative you talked with, along with a brief summary of the discussion. Keep this with copies of any documents you send to the insurance company.

Step Three: In appealing the denied claim, you should have the opportunity to review the information the insurance company used to make their decision. If necessary, get your doctor involved. Their office has staff that can help explain, and even send a letter explaining why the procedure/care was needed, or “medically necessary.”

Step Four: Remember each insurance company has its own appeal process and time constraint, or deadline, for appeals (typically 90-120 days from the date of service). Before submitting your information, make sure you have completed and include all required paperwork per your specific insurance company’s website or customer service representative. Once all documents are complete, make a copy of everything for your reference.

Step Five: If your insurance company denies the claim again, you can contact them to request an external appeal, which will be conducted by a medical professional not associated with the insurance company.

NOTE: Remember to stay calm as your talking on the phone with an insurance representative. A written appeal that is clear and factual carries more impact than a lengthy emotional telephone call.

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Surgery, whether minor or major, requires planning. It is important to have your doctor walk you through the full range of treatment options, along with their risks and benefits. Remember when asking questions and receiving information from your doctor, it is important to have a family member or friend accompany you to the doctor’s office, to lend an extra ear. Otherwise, most of what you discuss will be forgotten. If you are alone, take notes, take your time, and make sure you fully understand the answers to your questions. Most important is your comfort level with your physician’s recommendations and your decision upon entering surgery.

General questions to ask about surgery:

• What kind of surgery/procedure are you recommending?
• Why is this specific procedure my best option?
• Are there alternatives to this surgery?
• What are the risks of this surgery and how often do they occur?

Questions to ask your physician about his/her experience:

• How many times have you performed this procedure or operation (you want to make sure they do this type of surgery often)?
• Are you board certified in surgery (this means they have passed extra exams to perform surgical procedures)?

More specific questions:

• Does my insurance cover this procedure?
• What kind of anesthesia will I be given or need?
• How long will the surgery take?
• Is this an inpatient or outpatient procedure? How long will I be in the hospital/facility for?
• What kind of post-operative care will I be given at the hospital/facility? Are there sufficient nurses on staff? (Good = One nurse for every two patients in the Intensive Care Unit. One nurse for every four patients on floor units.)
• How well did your other patients recover after they had this surgery?
• What should I expect during recovery? Will I have any limitations? How long will it be before I can go back to work or exercise again? Will I recover to 100%?

Once you have your questions answered:

• Make sure you have the time and date of surgery finalized and written down.
• If you need preauthorization from your insurance company, make sure everything is approved prior to surgery.
• Know when you need to arrive prior to surgery. This can help make pre-operative tasks run smoothly and on time, otherwise your procedure could be postponed to another day.
• Ask your surgeon if there is anything specific you need to do to prepare for surgery.
• Go over any medications you are currently taking with your physician/surgeon. Some medications may need to be stopped or reduced prior to surgery.

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