This fall the Supreme Court will settle a longstanding debate whether doctors in training, better known as medical residents, are “students” or “employees” of their respective institutions. The terminology is not merely semantics inasmuch as $700 million dollars annually in tax revenue is at stake. The Federal Insurance Contribution Act (FICA) specifically provides an exemption from Social Security taxes for “service performed in the employ of a school, college, or university” by a “student who is enrolled and regularly attending classes at such school, college, or university.”
Under this statute, historically medical residents qualified for the exemption. However, in 2005 the Treasury Department passed a regulation excluding anyone working forty hours or more per week from meeting the definition of “student,” even if that work pertained to one’s studies (this exclusion obviously includes medical residents who work twice that many hours). The Supreme Court should rule that medical residents are indeed students and thus should qualify for the FICA Student Exemption.
The Mayo Foundation for Medical Education and Research and the University of Minnesota separately filed petitions arguing medical residents fall within the definition of “student” and should qualify for the tax exemption. The District Court agreed, but the 8th Circuit Court of Appeals overturned the decision.
Mayo is correct in its position. Residents have significant patient care responsibilities, but a main goal also is to learn and grow as physicians via hands-on patient care, didactics, and reading. Few if any medical students would be prepared to practice sound medicine independently come graduation day without some residency training, and none would be able to obtain a valid license.
The government’s arbitrary forty-hour work week cut off to qualify as a student doesn’t pass muster. Punishing students for working hard certainly does not send the best message to young minds about to enter the work force. To paraphrase from George Orwell’s Animal Farm, it seems all students are equal, but some students are more equal than others.
In essence, the government is on both sides of the issue. It is Medicare that provides residency training programs with the funds for resident wages. The pay bears no relationship to responsibility or the time and money that a resident has already invested in his or her education. It hovers just above minimum hourly wage. Even on an annual basis, remuneration is much lower than that of lesser trained hospital staff such as nurses, nurse practitioners, and physician assistants. The purported rationale for residents’ below market wage is that they are at teaching hospitals to learn and hence are “students.” For tax purposes, however, the federal regulators view them as “employees.” The government wants to have its cake and eat it too. Only with perverse Washington reasoning could this double standard persist.
When sleep-deprived medical residents are caring for an acutely ill patient in the early morning hours, it is a moot point whether the resident is considered an “employee” or a “student.” Either way most attending physicians are home fast asleep. It is primarily the resident’s responsibility to stabilize and treat the patient. Yet when residents receive that hard-earned pay check, the terminology has significant financial implications.
Four other circuits have disagreed with the 8th Circuit’s ruling and concluded that the Student Exemption should apply to medical residents. Hopefully the Supreme Court will too.
– Jason D. Fodeman, M.D., is an internal medicine resident at UCONN and a Visiting Fellow at the Galen Institute