For more than 70+ million Americans who use flexible spending accounts (FSA) and health savings accounts (HSAs), product and service eligibility has consistently been a point of confusion. Why are some expenses covered, while others that seem to be medical in nature are excluded from FSA and HSA eligibility?
The fact is, FSAs and HSAs are enshrined in the U.S. tax code, and as such, their use is governed by IRS code, specifically (IRC) 213(d), which determines what is allowed to be purchased with FSA and HSA funds in a given plan year. FSA and HSA reform requires action on the legislative level and is typically rare, but does happen, with the most significant reforms coming in the Affordable Care Act in 2010. But 2020 proved to be a banner year for FSA and HSA reform that could have put the wheels in motion to allow for future expansion of these accounts to further benefit consumers.
In 2020 alone, the IRS made the unprecedented decision to open up mid-year changes to FSA users to adjust their contributions, enroll or disenroll in their accounts, as well as the passage of the CARES Act, which removed the prescription requirement necessary to purchase over-the-counter medicines (OTC) using pre-tax funds and made feminine care products like tampons, pads and more fully FSA/HSA eligible for the first time.
It's been a big year, and one that could spell future opportunities for FSA and HSA reform that account holders have been seeking for years. Let's dive into the most recent legislative efforts to make FSAs and HSAs more versatile for American families - and how you can help get them across the finish line.
1. Personal Protective Equipment (PPE) Eligibility
Since the beginning of the COVID-19 public health crisis, FSA and HSA users were shocked to find out that their tax-free funds would not be eligible to cover much-needed personal protective equipment (PPE) like face coverings, disinfectant products and hand sanitizer to protect themselves from the spread of the virus.
Thankfully, in October 2020, the U.S. House of Representatives introduced HR 8450, a bill that would allow for the temporary FSA/HSA eligibility of face coverings, disinfectant products and hand sanitizer. Eligibility would be tied to the current state of emergency in the U.S. in regards to the COVID-19 public health crisis. So if the state of emergency ends in 2021, PPE products would be eligible until 12/31/2021.
This is an issue that is near and dear to the Health-E Commerce community, and one that we are fully supporting to give account holders more options to protect themselves and their loved ones. We encourage FSA/HSA users to sign our petition to push Congress to enact this much-needed change, as well as visiting TaxFreeBetter.com to use our form letters to send a personalized letter to your member of congress to encourage them to pass this essential bill for tax-free healthcare users.
2. Vitamin Supplements
Today, the only vitamin supplements that are allowed under IRS rules are prenatal vitamins and glucosamine/chondroitin supplements. But this too could have a chance of changing in the future thanks to another bill introduced in 2020 that would make vitamin supplements eligible for purchase with FSA/HSA funds.
The bill S. 4463 was introduced in the Senate Finance Committee in August 2020, and would allow for certain types of vitamin and mineral products to be made available for FSA/HSA spending. This is one of many similar bills that have been introduced on this topic in recent years, and they have either never made it out of the committee stage or never came up for a vote in Congress.
Vitamin supplements are one of many products that may seem like a logical addition to FSA/HSA eligibility, but because many don't have a direct role in medical treatment, the IRS has been wary of allowing these expenses to become fully eligible. But as is the case with PPE, if the public shows enough support for this sort of change, it has a much better chance of becoming reality, so contacting your member of congress is a good first step!
3. Gym Memberships and Fitness Equipment
Finally, while no pieces of legislation have been introduced on the subject of FSA/HSA eligibility of fitness expenses like gym memberships, this is another common refrain among FSA/HSA users: "If I can help avoid future health problems by making the right health and wellness choices now, why shouldn't these products be considered 'qualified medical care'?"
This is a classic example of how "prevention" in IRS regulations can be a confounding thing for account holders. Internal Revenue Code (IRC) 213(d) currently defines qualified medical care as, "amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body." Unfortunately, in order for medical products to qualify as prevention, the IRS has also indicated that there must be an imminent probability of contracting a disease or illness without the use of the product. While FSAs and HSAs have been subject to numerous changes over the years through various rounds of regulatory guidance and legislative reform, the IRS definition that dictates what tax-free healthcare consumers can purchase has stayed the same for decades.
As millions of American families turn to their workplace benefits to support their long-term health and overall wellness, they are surprised to find that while these funds are extremely helpful in the event of sickness or medical emergency, there are restrictions in helping them improve their overall state of health or in pursuing healthy activities that can help them avoid health issues in the future. Allowing these types of expenses would be a fundamental change for these accounts, but one that is desired by millions of Americans.
Ultimately, one of the greatest things about tax-free healthcare benefits is that account holders can have a direct role in supporting their expansion on the legislative level. A letter to a member of congress, signing a petition, and more can ensure that your voice is heard and these benefits are prioritized as essentials for the health and financial well-being of all American families.
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