IRS Information Letter Explains Requirements for Expenses to Qualify as Medical Care

The IRS has released an information letter regarding the requirements for expenses to qualify as medical care under Code § 213. The letter responds to a request for guidance on when the cost of health and wellness coaching is medical care that can be reimbursed under health FSAs, HSAs, and other tax-favored accounts. The coaching services at issue were recommended by a physician or other qualified medical professional for a patient who had been diagnosed with a specific disease or chronic health risk, to alleviate or prevent the disease or chronic health risk. They included an initial wellness planning visit, individual or group counseling on a specific disease or chronic health risk, chronic care management through individual or group visits, and individual or group preventive medical counseling from the physician and coach as a team.

Declining to answer the specific question, the letter instead provides general information about how to determine whether an expense is for medical care, explaining that Code § 213 defines medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. Personal, family, or living expenses are not considered to be for medical care unless they fall within the Code § 213 definition; expenditures that are merely beneficial to an individual’s general health are personal and are not for medical care. In contrast, expenses for services that have no purpose other than to treat a specific disease, illness, or mental defect may qualify as medical care. Objective factors indicating that an otherwise personal expense is for medical care include the individual’s motive or purpose, a physician’s diagnosis and recommendation, the relationship between the treatment and the illness, the treatment’s effectiveness, and its proximity in time to the onset or recurrence of the illness. The letter recommends considering the following when determining whether health and wellness coaching costs are medical expenses: whether the costs are incurred for diagnosing, treating, mitigating, preventing, or alleviating a disease; whether the costs are merely beneficial to the taxpayer’s general health and might be considered personal expenses; and whether the expenses would not have been incurred but for the individual’s medical condition.

EBIA Comment: This IRS information letter does not break new ground or include any surprises. However, it reminds administrators of the importance of obtaining adequate and appropriate substantiation before reimbursing otherwise personal items and highlights the additional challenges involved with dual-purpose expenses. For more information, see EBIA’s Cafeteria Plans manual at Sections XX.D (“Expenses Reimbursed Must Be for Medical Care”) and XX.M (“Table of Common Expenses, Showing Whether They Are for ‘Medical Care’”). See also EBIA’s Consumer-Driven Health Care manual at Sections XV.C (“What Is an HSA-Qualified Medical Expense?”) and XXIV.B (“HRAs May Reimburse Only Code § 213(d) Expenses”). You may also be interested in EBIA’s web-based Health Care Expenses Table, which makes it easy for employers, employees, administrators, and others to determine online what expenses qualify for reimbursement by a health FSA or HRA, or for tax-free distribution from an HSA.

Contributing Editors: EBIA Staff.