The IRS has raised concerns about potential misinformation regarding the eligibility of health and wellness items under Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs). These accounts allow individuals to use pretax dollars for various health-related expenses, but the IRS has observed discrepancies in how some companies interpret and apply the rules.
The issue revolves around companies providing consumers with “letters of medical necessity,” essentially doctor’s notes, to purchase health-related items such as gym memberships, fitness trackers, dietary supplements, and nutritious meal plans. While these notes are signed by doctors, the IRS questions the validity of their recommendations.
According to the IRS, medical letters should stem from face-to-face interactions between the doctor and the patient, either in person or via telehealth visits. Merely filling out a questionnaire, a practice common among some companies, does not meet the agency’s standards for medical necessity.
This scrutiny underscores the importance of ensuring compliance with IRS guidelines when utilizing HSAs and FSAs to cover health expenses. Individuals and companies should be vigilant in understanding the criteria for eligible expenses and seek clarification from qualified healthcare professionals when necessary.
The IRS says pretax funds aren’t for ‘health and wellness’
The IRS’s stance on the eligibility of certain expenses under Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs) has sparked debate and raised questions about the agency’s approach to determining the legitimacy of doctor’s notes.
An agency spokesman emphasized that food and dietary supplements are typically considered medical expenses only under strict circumstances, casting doubt on the validity of claims that seek to convert non-medical expenses into eligible medical expenses based solely on self-reported health information.
The IRS’s assertion that funds from HSAs and FSAs cannot be used for expenses promoting general health and wellness, unless strict criteria are met, has drawn criticism from some quarters. Calley Means, a co-founder of Truemed, a company assisting individuals in obtaining letters of medical necessity, argues that the IRS is encroaching on the patient-doctor relationship and setting a higher bar for accessing medically tailored exercise and food plans compared to other medical treatments like antidepressants and Ozempic.
This disagreement highlights the complexities surrounding the interpretation and enforcement of IRS regulations governing HSA and FSA expenditures. While the IRS aims to ensure compliance with tax laws and prevent misuse of tax-advantaged accounts, there are differing perspectives on the extent to which certain expenses should be considered eligible under these accounts. As the debate continues, clarity and transparency in IRS guidelines will be essential for both consumers and businesses navigating the use of HSAs and FSAs.
Tax rules that favor drugs over prevention
Calley Means, co-founder of Truemed, argues that the IRS’s stance on the use of questionnaires and emails to determine medical need is misguided and potentially harmful. He points out that this practice is common in prescribing pharmaceutical interventions, and asserts that the IRS is attempting to impede the trend of Americans discovering the efficacy of dietary interventions in treating health conditions.
Means highlights previous rulings by the U.S. Tax Court, which recognized special diets prescribed by doctors as legitimate medical expenses for individuals with specific medical conditions. For instance, in cases where individuals had allergies or heart conditions, the Tax Court allowed deductions for expenses related to their prescribed diets, demonstrating that food can indeed be considered medicine under certain circumstances.
He criticizes the IRS’s implication that food is not medicine, particularly in light of the federal government’s “Food is Medicine” initiative aimed at combating chronic diseases through improved access to nutritious food. Means questions why the IRS is seemingly at odds with interventions recommended by doctors to address specific health conditions, especially given the chronic disease crisis affecting many Americans.
In essence, Means argues that the IRS’s approach risks hindering individuals’ access to effective dietary interventions that could potentially reverse disease and improve health outcomes. He calls for greater recognition of the role of food as medicine and urges the IRS to reconsider its stance in light of the growing body of evidence supporting the efficacy of dietary interventions in managing and preventing chronic diseases.
How HSA and FSA funds work
Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs) provide individuals with a tax-advantaged way to save money for a wide range of medical and dental expenses, including prescription drugs, pregnancy tests, and hearing aids. These accounts have gained popularity, with approximately $116 billion held in 36 million HSAs as of last year, according to research from Devenir. About 1 in 4 people with employer-sponsored health insurance are enrolled in high-deductible health-care plans that offer HSAs.
Many individuals use funds from their HSAs and FSAs to purchase health and wellness products. Major retailers like Walmart and Target advertise certain items, such as dietary supplements and sunscreens, as “FSA/HSA eligible” on their websites. Dedicated online platforms like HSA Store offer a wide range of products, including skin care items, electrolyte supplements, massage guns, and fitness trackers, which are marketed to customers as eligible for HSA and FSA reimbursement.
While the IRS has provided guidance on what products and services may qualify as medical expenses, there can still be ambiguity regarding eligibility. According to an IRS spokesperson, certain items like fitness trackers might qualify as medical expenses if recommended by a doctor for a specific medical condition. However, the spokesperson emphasized that items such as food or supplements are typically considered medical expenses only in rare circumstances.
This delineation underscores the importance of understanding IRS guidelines and consulting with healthcare professionals when using HSA and FSA funds for health and wellness purchases. While some products may be eligible under certain conditions, others may not meet the criteria for reimbursement, leading to potential confusion for consumers navigating the gray areas of eligibility.
How consumers get medical letters
The IRS has established specific criteria for items to qualify as medical expenses under Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs). Supplements must be recommended by a medical practitioner for the treatment of a specific medical condition to qualify. Similarly, food can be considered a medical expense only if it is deemed necessary to alleviate an illness, does not satisfy normal nutritional needs, and is substantiated by a physician.
Regarding gym memberships, the IRS states that they can be considered a medical expense if purchased for the sole purpose of affecting a structure or function of the body, such as physical therapy, or if prescribed to treat conditions like hypertension, heart disease, or obesity.
Truemed facilitates the process of obtaining letters of medical necessity by allowing consumers to fill out an online form detailing their health and medical histories. A remote doctor then reviews this information and issues a letter of medical necessity if the customer requires a particular product or service to treat or prevent a medical condition. This letter can then be used to justify purchases as medical expenses for reimbursement through health-care accounts. Truemed partners with various companies, including fitness centers like CrossFit and Equinox, as well as health-food-delivery services like Daily Harvest and Sakara.
The lack of face-to-face encounters between doctors and patients through Truemed has drawn scrutiny from the IRS. However, it remains unclear how the IRS or HSA/FSA managers could differentiate between medical letters obtained through various means, whether through in-person visits, video consultations, or questionnaires.
Although the IRS lacks specific enforcement authority, it has shared its guidance with the Federal Trade Commission to address false advertising by companies. IRS Commissioner Danny Werfel emphasized the importance of adhering to the rules governing medical expenses and cautioned taxpayers against misconceptions perpetuated by aggressive marketing tactics.
Ultimately, the IRS aims to ensure that legitimate medical expenses are appropriately reimbursed under tax laws while discouraging misleading advertising practices that may lead to improper reimbursement claims.