Why the IRS doesn’t believe your doctor’s note for tax-free health items
For years, Americans have been using tax-free dollars from health savings accounts to cover a wide variety of health and wellness items, including eyeglasses, tampons, massage devices, acupuncture and even fitness equipment deemed medically necessary by a doctor.
But now the IRS says some companies are misleading consumers about what is and is not eligible under the rules of these Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs), which allow consumers to use pretax dollars for various health needs.
At the heart of the issue are companies that provide consumers with “letters of medical necessity” - essentially a doctor’s note - to purchase health-related items, such as nutritious meal plans, gym memberships, fitness trackers and dietary supplements.
Even though these notes are written by doctors, the IRS is questioning the validity of their advice. In general, the agency said medical letters must result from face-to-face interactions with the patient, either in person or through telehealth visits. Getting a medical letter by filling out a questionnaire, as is commonly practiced by some companies, is not adequate, the agency says.
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The IRS says pretax funds aren’t for ‘health and wellness’
In an interview an agency spokesman said that food and dietary supplements could only “rarely” be considered a medical expense, and only under strict circumstances. It’s also unclear how the IRS plans to decide what doctor’s notes are legitimate and which ones don’t count.
“Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness, and exercise expenses into medical expenses, but this documentation actually doesn’t,” the agency said in a news release.
The agency says that unless consumers meet strict criteria, they can’t use funds from their HSA and FSA accounts to pay for things that promote their “general health and wellness.”
Calley Means, a co-founder of Truemed, a company that helps people obtain letters of medical necessity to purchase items with HSA funds, said that the IRS is on shaky legal ground and overstepping into the relationship between patients and their doctors.
He said that by challenging the legitimacy of some doctors’ notes and warning that HSA funds could only “rarely” be used for things such as food and exercise, the agency is setting a higher bar for people to get “medically tailored exercise and food plans than antidepressants and Ozempic.”
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Tax rules that favor drugs over prevention
Using questionnaires and emails to help determine medical need is a common practice “used to prescribe tens of millions of pharmaceutical interventions,” he said. “Let’s call this what it is: an attempt by regulators to confuse and freeze the trend of Americans learning that they can work with their doctors to reverse disease with food, not drugs.”
Means pointed to several cases in which the U.S. Tax Court has ruled that special diets prescribed by a doctor could qualify as medical expenses for people with medical conditions.
In one 1976 case, the U.S. Tax Court ruled that a man and woman who had allergies to pesticides and herbicides could deduct as a medical expense some of the costs of their expensive organic diet. In another case, the Tax Court ruled that a man with a heart condition who was prescribed a salt-free diet could deduct as a medical expense some of the costs associated with his special diet.
Means said that the IRS appeared to be suggesting that food was not medicine, which he said runs counter to the federal government’s “Food is Medicine” initiative launched last year to reduce the prevalence of chronic diseases by providing Americans with better access to nutritious food.
“In the midst of a chronic disease crisis that is crippling the American people, why is the IRS picking a war with food and exercise interventions that are recommended by doctors to treat specific health conditions?” said Means.
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How HSA and FSA funds work
HSAs and FSAs allow people to set aside money on a pretax basis to pay for a wide range of medical and dental expenses, such as prescription drugs, pregnancy tests and hearing aids. As of last year, Americans held about $116 billion in 36 million health savings accounts, according to Devenir, a research and investment company. About 1 in 4 people with employer-sponsored health insurance are enrolled in high-deductible health-care plans with HSAs.
Using HSA and FSA funds to pay for health and wellness products is a widespread practice. Walmart, Target and other large retailers advertise some dietary supplements, sunscreens and a variety of other products as “FSA/HSA eligible” on their websites. One popular website, HSA Store, sells skin care products, electrolyte supplements, massage guns, foam rollers, heating pads, fitness trackers and other products that it advertises to customers as “surprisingly eligible.”
The IRS has published guidance on its website about what products and services can be considered medical expenses. But in some cases, what qualifies and what doesn’t remains somewhat of a gray area.
The IRS spokesman said that some products, such as fitness trackers, might qualify as a medical expense if a person with a medical condition is advised by their doctor to purchase it. But only in “rare” circumstances can things like food or supplements be considered a medical expense, the spokesman said.
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How consumers get medical letters
To qualify as a medical expense, supplements must be “recommended by a medical practitioner” as treatment for a specific medical condition. Food can be considered a medical expense only if it “doesn’t satisfy normal nutritional needs,” helps to alleviate an illness and the need for it is “substantiated by a physician,” the IRS says.
A gym membership, according to the agency, can count as a medical expense if it is purchased “for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury)” or if the membership was purchased to treat hypertension, heart disease, obesity or another disease diagnosed by a doctor.
When consumers use Truemed to obtain letters of medical necessity, they fill out an online form describing their health and medical histories, then a remote doctor reviews their information. The patient receives a letter of medical necessity if the doctor determines the customer needs a particular product or service to treat or prevent a medical condition like diabetes, heart disease or obesity. The customer can then use that letter to justify their purchase as a medical expense and request reimbursement through their health-care account.
Truemed partners with companies such as CrossFit, Equinox, LA Fitness, CorePower Yoga, and the health-food-delivery services Daily Harvest and Sakara.
It’s the lack of a face-to-face encounter between doctor and patient that seems to have raised the agency’s ire. But it’s not clear how the IRS or an HSA or FSA manager could distinguish between medical letters written from in-person visits, those that happen on a video screen and those that occur via a questionnaire.
The agency also doesn’t have any specific enforcement authority, but a spokesman said the IRS guidance is being shared with the Federal Trade Commission, which could target companies that engage in false advertising.
“Legitimate medical expenses have an important place in the tax law that allows for reimbursements,” IRS Commissioner Danny Werfel said in a news release Wednesday. “But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses.”
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