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October 13, 2011

IRS Clarifies Qualified Medical Expenses

The IRS has issued three recent Information Letters relating to the determination of qualified medical expenses.  As background, for a medical expense to be reimbursed by certain medical reimbursement plans, such as a flexible medical spending account (FSA), a health savings account (HSA), a health reimbursement arrangement (HRA), or an Archer medical savings account (Archer MSA), the expense must be specifically for the purpose of ”….the diagnosis, cure, mitigation, treatment, or for the purpose of affecting any structure or function of the body…” [IRS Section 213(d)]. 

These Letters are important reminders about how an expense should be analyzed to determine whether it is reimbursable as a permissible medical expense under a particular plan.  Two of the letters specifically underscore that the plan, particularly an FSA, an HSA, or an HRA can define the types of medical expenses that are reimbursable.  Plans are not obligated to reimburse all of the types of expenses that could otherwise be reimbursed. 

Concierge Services

In one of these letters, a question was asked specifically about concierge services (IRS Information Letter 2011-0027).  Concierge services can come in many forms.  In this instance, an annual fee is paid to a medical practice for “heightened access to physicians, a comprehensive annual physical, minimum half-hour doctor visits, and access to dietitians and exercise therapists”.  According to the IRS, depending on what the concierge fee is specifically for, some, all or none of it may actually qualify as a medical expense.  This Letter did not address the specifics of concierge expenses; rather, it simply says that if it is determined the concierge expense would qualify as a medical expense, the plan, itself, determines whether it would be reimbursable.

Hearing Aid Repairs

IRS Information Letter 2011-0055 specifically affirms that hearing aid repairs are reimbursable as a medical expense.  But again, the IRS underscored that it is the plan, itself, that defines whether the expense is reimbursable, under its terms and conditions.

Medical Foods

In IRS Information Letter 2011-0035, the IRS addressed the deductibility of special foods or food supplements as a qualified medical expense.  In a nutshell, if the food supplement is determined to be medically necessary, as proven by a physician diagnosis, then the cost of the food supplement that exceeds the cost of food for normal nutritional needs could be deductible as a medical expense.  Likewise, these expenses could be reimbursed from medical spending accounts, as long as the plan so permits.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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