The Road to Better Health: What Qualifies as an Eligible Expense From Your HSA or FSA?

In the December 2023 edition of our monthly eNewsletter, we wrote about surprising expenses that can be paid for or reimbursed by Health Savings Accounts (HSAs) and Health Flexible Spending Accounts (FSAs).

Our Pinnacle | Health & Benefits participants often ask whether certain expenses can be paid for or reimbursed by their Health Savings Accounts (HSAs) and Health Flexible Spending Accounts (FSAs). Sometimes the answer is clear because the expense is listed in Internal Revenue Service (IRS) publication 502 as a common medical or dental expense. Other times, determining whether an expense is a “qualified medical expense” is not as simple.

Around the New Year, many people make resolutions to add healthy habits and focus on wellness, so we’ve offered some guidance here related to HSA and FSA expenses that are or are not considered eligible by the IRS.

What is a Qualified Medical Expense?

Qualified medical expenses are health care costs that qualify for a tax deduction. For a medical expense to qualify for a tax deduction, the service or item purchased must be purchased to diagnose, cure, alleviate or prevent a physical or mental disability or illness. Although this seems like a clear description, there are many nuances that cause certain expenses to be disqualified.

To address some of these nuances, the IRS released regarding certain services and products related to nutrition, wellness and general health and their eligibility for a tax deduction. The theme when it comes to “qualifying” nutrition, weight loss and wellness expenses is that there must be a physician’s diagnosis that can be alleviated or cured by these types of services and products.

Nutritional Counseling & Wellness

Upon arriving at most physician appointments, your vital statistics (e.g., blood pressure, weight, etc.) are taken by medical personnel. If your physician determines you have hypertension, diabetes or are clinically obese, they may provide multiple suggestions to help.

Your physical examination can be paid for with your HSA or Health FSA because the exam was needed to determine whether a disease or illness was present. And medication that is FDA approved to treat each condition would be an eligible expense. But what about follow-up visits with a nutritionist or enrollment in a weight loss program? Could those be paid for with your HSA/FSA?

The IRS says: Yes. If you are diagnosed with an illness or ailment where weight loss and/or nutritional counseling is prescribed by your doctor, these expenses could be reimbursed tax-free when accompanied by a letter of medical necessity (LOMN). Requirements for this letter are included at the end of this article.

Food or Beverages for Weight Loss

Let’s say your doctor also suggests certain nutritional shakes to assist in regulating your weight or blood sugar. Could you use your FSA or HSA to pay for them?

They must meet three requirements to be a qualified expense.

1) The food or beverage does not satisfy normal nutritional needs.

2) The food or beverage alleviates or treats an illness or condition such as obesity or diabetes.

3) The need is substantiated by a physician.

The amount that may be reimbursed is limited to the difference between the cost of “normal” nutritional foods and any prescribed nutritional product.

It is possible that foods and beverages for weight loss could be eligible, but past IRS rulings illustrate it is very difficult to meet all three of these requirements.

Gym memberships and exercise equipment

Perhaps you are struggling with knee or back pain, so you schedule a visit with an orthopedic physician. After a thorough exam and x-rays, the doctor determines you need physical therapy or to increase the density of certain and specific stabilizing muscles. Your exam and x-rays are eligible expenses, and physical therapy sessions likely are, as well. What about a membership to a pilates studio?

Generally, the IRS would not consider a membership to a gym or exercise studio to be an eligible expense if used for general overall health. However, if your doctor specifically prescribed pilates to cure your pain and mitigate a physical structural ailment with a LOMN membership fees or pilates equipment fees could be reimbursed from your HSA and/or Health FSA.

Nutritional Supplements

More physicians and alternative health practitioners are prescribing vitamins and supplements to cure certain illnesses or conditions. As a result, we’ve seen an increase in requests for reimbursements of over-the-counter supplements. The IRS states that supplements and vitamins may only be reimbursed from an HSA or FSA if it there is a corresponding medical diagnosis. So, if you are purchasing vitamins because you heard they make your hair grow longer and thicker, those would not be tax-deductible or reimbursable. On the other hand, if you were diagnosed with the medical condition alopecia, products specifically designed to promote hair regrowth may be reimbursed with a LOMN. Or if you have a medically-diagnosed vitamin deficiency, vitamins to treat it could be reimbursed by an HSA or FSA with an LOMN.

Letter of Medical Necessity Requirements

Like any tax-deductible expense, the IRS requires you maintain adequate substantiation to prove you are eligible for a deduction. For a doctor appointment, your explanation of benefits has the required data points (your name, the provider’s name, date and type of service, and cost). For medications or treatments not traditionally covered by health insurance, non-standard medical equipment or devices or items not usually eligible for a tax deduction, a Letter of Medical Necessity (LOMN) is required.

This is a written diagnosis and explanation from your doctor of the “prescription” for the expense to be eligible. It should name your medical condition and explain how the product or service cures, alleviates or prevents it. The letter should also outline the estimated length of treatment. If the treatment spans multiple years, you will need a new LOMN each tax or plan year.

If you are using a Health FSA to pay for these expenses, you will need to submit this documentation to your FSA administrator for substantiation. If you are using an HSA, you should retain the documentation for use in the event of an audit.