We have a Flexible Spending Account (FSA) through Dan’s office. This is a Good Thing. We put aside some pre-tax money every pay period, which can be used to reimburse us for certain out-of-pocket medical expenses. Thus, we are not taxed on those expenses, meaning that the government partially subsidizes them. If we put aside too much money (a possibility, since we have to estimate the amount the year before), we lose the excess, which presumably helps the government offset its subsidy. We therefore try to be conservative in estimating how much money to put aside.

So…this year because we had some unusual expenses, we ran out of our FSA budget sometime in June. With $14.74 left in the FSA account for the year, Dan had to make a doctor’s copay of $15.00. He tried to put this on the debit card associated with the FSA account, and (naturally) they would take only $14.74. So he charged that amount and paid $0.26 in cash. Perfectly reasonable, yes?

In August, we received a notice from the company that administers the FSA account that there was a charge of $14.74 for which they required backup documentation. Normally our copays do not require backup documentation, so…apparently either Dan hadn’t gotten, or I hadn’t saved, the medical documentation for the charge, not expecting to need it.

Apparently, the reason the system rejected the charge of $14.74 was that it was an odd amount, not matching our standard copay, and it’s theoretically possible we might have bought something from the doctor that didn’t qualify for the FSA account. In other words, the rejection was triggered because we had underpaid by twenty-six cents.

In order to clear up this $0.26 discrepancy, I decided that the easiest thing to do would be to submit some other charge that was clearly legitimate and more than the $14.74 under dispute. I got on the benefit administration company’s Web site in early November to do this. (Yes, I procrastinate bureaucratic stuff like this.) But their system wouldn’t allow me to enter new charges because it looked at all charges submitted rather than all charges accepted. Since the $14.74 under dispute had been submitted (though not accepted), the system thought that we were already maxxed out for the year.

So I called the customer support line. After almost three minutes negotiating their phone system, I spoke with a Real Person, who told me that I had to submit the new charge manually (not through their Web site) and that she would annotate our account so that they would apply the new charge against the outstanding $14.74 and call it even. I also annotated the claim form in large letters with this information.

I submitted the information manually via US mail.

Yesterday, we received a letter denying the claim. The reason the claim was denied was that it was for $25.00 but there was only $14.74 left in the account.

Today I got on the phone, negotiated the phone system for almost three minutes, and spoke with a Real Person. She told me that, even though our account had been annotated by the previous Real Person I talked with, the system had rejected the new charge because the $14.74 claim was still open. She said she is going to resubmit the charge for manual review and it should go through just fine.

If for some reason it doesn’t, we’ll be getting another letter from their system.

As nearly as I can tell, the fact that we paid $0.26 too little has now cost me $0.44 for a stamp and about an hour of my time. It has cost the administration company $0.88 for postage and two phone calls with Real People lasting 5-10 minutes each. A company I once consulted to estimated that every call to Customer Support costs the company close to $50 in salary, indirect expenses, office space, etc. That was ten years ago, but let’s say this company is really efficient, and each call costs them only $25. Therefore, they have spent some $50 so far in order to handle Dan’s underpayment of twenty-six cents. And they will spend more than that: we still have a manual review process to look forward to.

I’m sure this is just the smallest example of the sad state of affairs of our health-care system. Was anyone wondering why our health care costs are so high?

The events in this story occurred in the winter of 1985 at the Usenix Conference in Dallas, Texas. I was working for a company in Cambridge, MA called Mirror Systems (a wholly owned subsidiary of the Times Mirror Corporation, a major publishing conglomerate). I was the Vice President of Technical Development. Our IS group, under my management, comprised two people: our operations manager and our systems programmer. We used the UNIX operating system, and so the Usenix conference was an important event to these people and to some of the developers as well. The company sent perhaps eight people to the conference. I went too. I went because as manager of a UNIX shop, I felt the need to know as much as I could about the technical environment.

Now, like many subsidiaries of major corporations, Mirror Systems, despite its small size, was subject to intense financial controls by the parent company. And like many technically oriented companies, especially in Cambridge, its internal culture resisted such control. The people who attended the Usenix conference were among the most technical of our staff and therefore in general were among the most resistant to the financial bureaucracy our parent company imposed. And among the technical staff, none was more resistant than our systems programmer Franklin, Unix wizard extraordinaire.

Mirror Systems employees were subject to limits imposed by the parent corporation on how much we could expense for a breakfast, lunch, or dinner. And expenses over a certain amount (perhaps $25) had to be accompanied by a receipt. Wanting to have one dinner at a particularly good (and expensive) restaurant in Dallas, those of us traveling to the conference agreed that we’d skimp on dinner expenses for the rest of the conference in order to afford this one splurge of a meal.

Eight of us were present for dinner. The meal was great. The wine was excellent. When the bill came, Franklin picked up the tab and put it on his credit card. This surprised me—he wasn’t much of one for dealing with finances—but he assured me he wanted to do it.

When Franklin’s expense report crossed my desk the following week, I saw at once the amusing pattern that had prompted his eagerness to pick up the check. For the entire duration of the conference, he had expensed only $5 for each meal—probably less than he had actually spent. There were no accompanying receipts for these expenses, none being required. And for the one dinner, he had expensed the entire tab for a meal for eight at a pricy restaurant—perhaps $600. It made me laugh. I approved the expense report and submitted it to our comptroller for processing.

The next day, the president of the company called me into his office. The comptroller was there. He looked very upset, and the president no less so. “What is the meaning of this expense report?” asked the president.

“I know it’s a lot for one dinner,” I explained, “but there were eight of us there. See, Franklin has listed the attendees. We all ate very inexpensively all week long so that we could have this one meal. Look at all the expense reports, and you’ll see.”

“That’s not the problem,” said the comptroller. “I can’t submit this to corporate.”

“But why not?”

“This will stand out like a police car with its lights on. If we submit something like this, we’ll get audited for sure. And that will be more work for me than you can imagine.”

“Why would they audit us? The expense report is legitimate. If anything, Franklin has cheated only himself by understating the amounts he actually spent on meals.”

“That’s exactly the problem! Who spends exactly $5.00 on every meal, all week long? It looks too suspicious. You have to tell him to vary the amounts.”

“You mean, submitting $600.00 for one meal is okay; it’s the $5.00 meals that are the problem? And if he submits some meals for $5.00, some for $6.50, some for $8.95, that would be okay, even though it would cost the company more?”

 “Yes!” Relief shone on the comptroller’s face.

And so I had to tell Franklin that the pattern was really beautiful, but that we needed random numbers here. And so it was done.

And no, we didn’t get audited.

There is, of course, the obvious question about the circumstances under which an investor might withdraw his money early from this CD without paying a penalty and therefore in what way the CD might be in any way more liquid than any other CD. Let’s put this aside.

In light of current economic performance and forecasts, the image of a liquid CD is just a little unsettling. I have a few investments like that myself. No matter how I try to hold on to them, the money just seems to run through my fingers. I didn’t spend it, but every week, there’s a bit less in the reservoir. If all my investments were liquid, the money would soon run out altogether. I’m not sure I want a liquid CD too.

Give me a good solid investment any day.