Eligible Health Care Expense Through Cafeteria Plans

You may include expenses for yourself, your spouse, your children and other dependents. by a health FSA. Expenses may be incurred by the employee or by the employee`s spouse or eligible dependents (children, siblings, parents and others for whom an exemption may be claimed under Section Qualified expenses are those expenses incurred during the plan year for the diagnosis, treatment or prevention of disease, and for treatments affecting any part or function of the body. The expense must be to alleviate or prevent a physical defect or illness. Expenses solely for cosmetic reasons generally are not eligible. Expenses that are merely beneficial to one`s health (e.g., over-the-counter drugs) are not eligible. For a complete listing, you may call 1-800-829-3676 and request a free copy of Publication 502: Medical - Dental Expenses. Expenses paid by insurance are not eligible. Benefits Available Through Health FSAs

A health FSA can be used to reimburse medical and dental expenses that qualify as federal income tax deductions (whether or not they exceed the IRS minimum applied to these deductions) under Section 213 of the tax code. Medical expenses that are not deductible under Section 213 may not be reimbursed 152 of the tax code).

"Medical care" expenses as defined by Section 213 include amounts paid for the diagnosis, treatment, or prevention of disease, and for treatments affecting any part or function of the body. The expenses must be to alleviate or prevent a physical defect or illness. Expenses for solely cosmetic reasons generally are not expenses for medical care. Examples include face lifts, hair transplants, and hair removal (electrolysis). Also, expenses that are merely beneficial to one`s general health (for example, vacations) are not expenses for medical care.

One fact or circumstance that often—but not always—indicates that medical care involves the treatment or prevention of disease is whether a physician prescribes the care. A mere suggestion by a physician probably is not enough. In addition, there should be a doctor-patient relationship between the employee and the physician prescribing the care.

Following is an alphabetical list of items that are encountered frequently by sponsors of FSAs. Some of these items may be reimbursed, and some may not; a brief note indicating which category the item falls into follows each item.

• Abortion. Medical expenses associated with a legal abortion are reimbursable.
• Acupuncture. Medical expenses paid for acupuncture are reimbursable.
• Alcoholism and drug abuse. Medical expenses paid to a treatment center for alcohol or drug abuse are reimbursable. This includes meals and lodging provided by the center during treatment.
• Ambulance. Medical expenses paid for ambulance service are reimbursable.
• Artificial limb. Medical expenses paid for an artificial limb are reimbursable.
• Artificial teeth. See Medical aids.
• Attendant. See Nursing services.
• Autoette. See Wheelchair.
• Automobile. See Car.
• Birth control pills and devices. Medical expenses paid for birth control pills and devices prescribed by a doctor are reimbursable.
• Braille books and magazines. The amount by which the cost of Braille books and magazines for use by a visually impaired person exceeds the price for regular books and magazines is reimbursable.
• Breast augmentation. Expenses related to breast augmentation (such as implants or injections) are not reimbursable because the procedure is cosmetic in nature. However, medical costs related to the removal of breast implants that are defective or are causing a medical problem are reimbursable.
• Breast reduction. Medical expenses related to breast reduction surgery are reimbursable only if a physician substantiates that the procedure is medically necessary and not for cosmetic purposes (that is, to prevent or treat an illness or disease).
• Capital expenses. If their main purpose is medical care, capital expenses paid for special equipment installed in a participant`s home or for improvements to the home are reimbursable. For further details, see discussion under the heading, "Capital expenses," below.
• Car. Medical expenses are reimbursable for special hand controls and other special equipment installed in a car for the use of a person with disabilities. Also, the amount by which the cost of a car specially designed to hold a wheelchair exceeds the cost of a regular car is a reimbursable medical expense. However, the cost of operating a specially equipped car is not reimbursable (see Transportation).
• Chair. The cost of a reclining chair purchased on the advice of a physician to alleviate a heart, back or other condition is reimbursable.
• Child care. See Dependent care.
• Childbirth classes. Expenses for childbirth classes are reimbursable, but are limited to expenses incurred by the mother-to-be. Expenses incurred by a "coach"—even if that is the father-to-be—are not reimbursable. To qualify as medical care, the classes must address specific medical issues, such as labor, delivery procedures, breathing techniques and nursing.
• Chiropractor. Expenses paid to a chiropractor for medical care is reimbursable.
• Christian Science practitioners. Medical expenses paid to Christian Science practitioners are reimbursable.
• Church of Scientology. See Scientology.
• Clinic. Medical expenses for treatment at a health clinic are reimbursable.
• Coinsurance amounts. Medical coinsurance amounts and deductibles are reimbursable.
• Contact lenses. See Vision care.
• Cosmetic surgery. Medical expenses for cosmetic surgery are reimbursable if the surgery is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. However, medical expenses paid for other cosmetic surgery are not deductible medical expenses under Code Section 213, and thus are not reimbursable by a health FSA. This applies to any procedure that is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevents or treats illness or disease. For example, face lifts, hair transplants, hair removal (electrolysis) and liposuction generally are not deductible. If there is a concern that a medical or dental surgery could be considered cosmetic, a doctor`s certification should be obtained explaining how the procedure meaningfully promotes the proper function of the body or prevents or treats an illness or disease. This will help to prove that the claim is reimbursable.
• Crutches. Medical expenses paid to buy or rent crutches are reimbursable.
• Dancing lessons, swimming lessons, etc. Dancing lessons, swimming lessons, etc., are not reimbursable even if a doctor recommends them.
• Day care. See Dependent care.
• Deductibles. Medical insurance deductibles and coinsurance amounts under the employer`s plan are reimbursable.
• Dental treatment. Medical expenses for dental treatment are reimbursable. This includes fees paid to dentists for X-rays, fillings, braces, extractions, dentures, etc. Also see Cosmetic surgery.
• Dependent care expenses. Dependent care expenses are not reimbursable under a health FSA, but may be reimbursable under a dependent care FSA.
• Diaper service. Payments for diapers or diaper services are not reimbursable unless they are needed to relieve the effects of a particular disease.
• Diets. See Special foods.
• Disability. See Braille books and magazines, Car, Guide dog, Learning disability, Lifetime care, Mentally retarded, Personal use items, Schools, Television, Therapy, Transportation, Wheelchair. Also see discussion under the heading "Capital expenses," below.
• Drugs. See Medicines.
• Drug addiction. See Alcoholism.
• Ear piercing. Expenses for ear piercing are not reimbursable.
• Electrolysis or hair removal. See Cosmetic surgery.
• Employment-related expenses. Employment-related expenses such as employment physicals are not reimbursable. (Note, however, that physical exams that are not employment-related are reimbursable. See Physical exams.)
• Employment taxes. See Nursing services.
• Eyeglasses. See Vision care.
• Face-lifts. See Cosmetic surgery.
• Fertility. Medical expenses related to the treatment of infertility, including in vitro fertilization, are reimbursable.
• Fitness programs. Fitness programs or physical therapy for general health are not reimbursable.
• Food. See Special foods.
• Founder`s fee. See Lifetime care.
• Funeral expenses. Expenses for funerals are not reimbursable.
• Group medical insurance. See Insurance premiums.
• Guide dog or other animal. The cost of a guide dog or other animal used by the visually impaired or hearing impaired is reimbursable. Costs associated with a dog or other animal trained to assist persons with other physical disabilities are also reimbursable, as are amounts paid for the care of these specially trained animals.
• Hair transplant. See Cosmetic surgery.
• Health club dues. Health club dues, YMCA dues, or amounts paid for steam baths for general health or to relieve physical or mental discomfort not related to a particular medical condition are not reimbursable.
• Healthy baby care. See Nursing services.
• Hearing aids. Medical expenses for a hearing aid and batteries are reimbursable.
• Hospital. Expenses incurred as a hospital in-patient or outpatient for laboratory, surgical and diagnostic services qualify as medical expenses.
• Hot tub. See Capital expenses.
• Household help. The cost of household help, even if recommended by a doctor, is prohibited. However, certain expenses paid to an attendant providing nursing-type services are reimbursable (see Nursing services).
• Human guide. Expenses for a human guide—to take a blind child to school, for example—are reimbursable. Also see Guide dog.
• Impotence or sexual inadequacy. Medical expenses related to the treatment of impotence are reimbursable if substantiated by a physician.
• In vitro fertilization. See Fertility.
• Infertility. See Fertility.
• Insulin. The cost of insulin is reimbursable.
• Insurance premiums. Premiums for any health plan other than the employer`s, including health plans maintained by the employer of an employee`s spouse or dependent are not reimbursable.
• Laboratory fees. Laboratory fees that are part of medical care are reimbursable.
• Lead-based paint removal. The cost of removing lead-based paints from surfaces in a home to prevent a child whom has (or has had) lead poisoning from eating the paint is reimbursable. These surfaces must be in poor repair (peeling or cracking) or within the child`s reach. The cost of repainting the scraped area, however, is not reimbursable.
• Learning disability. Tuition payments to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders are reimbursable. A doctor must recommend that the child attend the school. See Schools. Also, tutoring fees paid on a doctor`s recommendation for a child`s tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities are reimbursable.
• Legal fees. Legal fees paid to authorize treatment for mental illness are reimbursable. However, any part of a legal fee that is a management fee—for example, a guardianship or estate management fee—is not reimbursable.
• Licensing requirements. Neither the tax code nor IRS regulations require a plan participant to determine whether a provider is qualified, authorized under state law or licensed to practice before using his/her services. In Revenue Ruling 63-91, the IRS ruled that: "Amounts paid for medical services rendered by practitioners, such as chiropractors, psychotherapists, and others rendering similar type services, constitute expenses for `medical care` within the provisions of section 213 of the Code, even though the practitioners who perform the services are not required by law to be, or are not (even though required by law) licensed, certified, or otherwise qualified to perform such services." The main issue is the nature of the treatment, not the license held by the practitioner. Thus, services provided by a range of organizations and individuals may be reimbursable, including care provided by hospitals, medical doctors, dentists, eye doctors, chiropractors, nurses, osteopaths, podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists, psychoanalysts and others.
• Life insurance premiums. Life insurance premiums are not reimbursable because they could provide benefits that would be received in a subsequent plan year, resulting in prohibited deferred compensation.
• Lifetime care. Part of a life-care fee or "founder`s fee" paid either monthly or as a lump sum under an agreement with a retirement home is reimbursable if it is allocable to medical care. The agreement must require a specified fee payment as a condition for the home`s promise to provide lifetime care that includes medical care. Also, advance payments to a private institution for the lifetime care, treatment and training of an employee`s physically or mentally impaired dependent upon the employee`s death or inability to provide care are reimbursable. The payments must be a condition for the institution`s future acceptance of the dependent and must not be refundable.

• Liposuction. See Cosmetic surgery.
• Lodging and meals. The cost of lodging and meals at a hospital or similar institution are reimbursable if the employee`s main reason for being there is to receive medical care. (Also see Nursing home.) The cost of lodging not provided in a hospital or similar institution while an employee is away from home is reimbursable if four requirements are met: (1) the lodging is primarily for and essential to medical care; (2) medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital; (3) the lodging is not lavish or extravagant under the circumstances; and (4) there is not significant element of personal pleasure, recreation or vacation in the travel away from home.

The reimbursable amount cannot exceed $50 for each night for each person. Lodging is included for a person for whom transportation expenses are a medical expense because that person is traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night is reimbursable as a medical expense for lodging.

Meals and lodging away from home for medical treatment that is not received at a medical facility, or for the relief of a specific condition, are not reimbursable even if the trip is made on the advice of a doctor.

• Long-term care insurance premiums. Long-term care insurance premiums are not reimbursable under a medical FSA.
• Marriage counseling. Expenses for marriage counseling services do not qualify as medical expenses. However, sexual inadequacy or incompatibility treatment is reimbursable if a psychiatrist provides the treatment.
• Maternity clothes. Expenses for maternity clothes are not reimbursable.
• Massage. Fees paid for massages are not reimbursable unless prescribed and substantiated by a physician to treat a physical defect or illness.
• Mattresses. Mattresses and mattress boards for the treatment of arthritis are reimbursable.
• Meals. See Lodging and meals.
• Medical aids. Medical aids such as false teeth, hearing aids, orthopedic shoes, crutches and elastic hosiery are reimbursable.
• Medical information plan. Amounts paid to a plan that keeps medical information so that it can be retrieved from a computer data bank for medical care are reimbursable.
• Medical savings account (MSAs). MSAs cannot be offered as part of a flex plan or FSA.
• Medical services. Only legal medical services are reimbursable. Amounts paid for illegal operations or treatments, regardless of whether they are rendered by licensed or unlicensed practitioners, are not reimbursable.
• Medicare Part A. The tax paid for Medicare Part A is not reimbursable.
• Medicare Part B. Premiums paid for Medicare Part B are not reimbursable.
• Medicines. Amounts paid for prescribed medicines and drugs are reimbursable. A prescribed drug is one, which requires a prescription by a doctor for its use by an individual. The cost of insulin is also reimbursable.
• Mentally retarded special home for. The cost of keeping a mentally retarded person in a special home (not the home of a relative) on the recommendation of a psychiatrist to help the person adjust from life in a mental hospital to community living is reimbursable.
• Nursing home. The cost of medical care in a nursing home or home for the aged for an employee, or for an employee`s spouse or dependent, is reimbursable. This includes the cost of meals and lodging in the home if the main reason for being there is to get medical care.
• Nursing services. Wages and other amounts paid for nursing services are reimbursable. A nurse need not perform services as long as a nurse of a kind generally performs the services. This includes services connected with caring for the patient`s condition, such as giving medication or changing dressings, as well as bathing and grooming the patient.

Only the amount spent for nursing services is reimbursable. If the attendant also provides personal and household services, these amounts must be divided between the time spent performing household and personal services and the time spent on nursing services.

Meals. Amounts paid for an attendant`s meals are also reimbursable. This cost may be calculated by dividing a household`s total food expenses by the number of household members to find the cost of the attendant`s food, then apportioning that cost in the same manner used for apportioning an attendant`s wages between nursing services and all other services (see above).

Upkeep. Additional amounts paid for household upkeep because of an attendant are also reimbursable. This includes extra rent or utilities paid because of having to move to a larger apartment to provide space for an attendant.

Infant care. Nursing or baby sitting services for a normal, healthy infant is not reimbursable.

Social Security, unemployment (FUTA) and Medicare taxes paid for a nurse, attendant or other person who provides medical care are reimbursable.

• Optometrist. See Vision care.
• Orthodontia. Expenses for orthodontic care are generally reimbursable, except care for cosmetic purposes. See Cosmetic surgery.
• Orthopedic shoes. See Medical aids.
• Organ donor. See Transplants.
• Oxygen. Amounts paid for oxygen or oxygen equipment to relieve breathing problems caused by a medical condition is reimbursable.
• Parking. See Transportation.
• Patterning exercises. See Therapy.
• Personal use items. Items that are ordinarily used for personal, living, and family purposes are not reimbursable unless they are used primarily to prevent or alleviate a physical or mental defect or illness. For example, the cost of a wig purchased at the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease is reimbursable.

If an item purchased in a special form primarily to alleviate a physical defect is one that in normal form is ordinarily used for personal, living and family purposes, the cost of the special form in excess of the cost of the normal form is reimbursable. (Also see Braille books and magazines.)

• Phone equipment. See Telephone.
• Physical exams. Physical exams are generally reimbursable, except for employment-related physicals. See Employment-related expenses.
• Pre-existing conditions. Medical expenses not covered because of the plan`s pre-existing condition limitation are reimbursable.
• Prescription drugs. See Medicines.
• Private hospital room. The extra cost of a private hospital room is reimbursable.
• Prosthesis. See Artificial limb.
• Psychiatric care. Expenses for psychiatric care are reimbursable. These expenses include the cost of supporting a mentally ill dependent at a specially equipped medical center where the dependent receives medical care. Also see Psychoanalysis and Transportation.
• Psychoanalysis. Expenses for psychoanalysis are reimbursable.
• Psychologist. Expenses for psychological care are reimbursable.
• Radial Keratotomy. According to the IRS, radial keratotomy (RK) is a deductible expense under Code Section 213 and thus reimbursable under a medical FSA. The IRS` view was stated in a June 1996 private letter ruling (PLR).

Prior to this ruling, it was not clear whether the procedure, which involves eye surgery to correct nearsightedness, met the definition of medical care specified under Section 213 or whether it should be treated as cosmetic surgery, which cannot be reimbursed under a medical FSA.

A 1994 court case supported the view that RK expenses are not reimbursable. In that case, a federal district court in South Carolina upheld a plan administrator`s decision to deny reimbursement for RK on the basis that the procedure was experimental, not medically necessary, and for cosmetic purposes—all exclusions specified in the plan document.

In its June 1996 PLR, however, the IRS took the opposite point of view. The IRS reasoned that RK is a surgical procedure affecting the structure or function of the body for the purpose of correcting a physical defect, and thus meets the Code Section 213 definition of medical care.

Flex plan sponsors in the 4th Circuit—Maryland, North Carolina, South Carolina, Virginia and West Virginia—should probably continue following the South Carolina district court case mentioned above, since court decisions have higher precedential value than PLRs.

Some insurance companies or TPAs, which are not bound by PLRs, may choose to continue disallowing reimbursement for RK expenses despite the new PLR. This might be because they continue to define the procedure as cosmetic surgery or simply because RK expenses are still defined in the administrative contract as nonreimbursable.

The ruling did not address photorefractive keratectomy (PRK), a relatively new form of laser surgery that achieves the same goal as RK. Since the two procedures are so similar, however, it is reasonable to assume that the IRS would treat PRK the same as RK.

• Reasonable and customary charges, amounts in excess of. Medical expenses in excess of the plan`s reasonable and customary charges are reimbursable.
• Resort. See Spa or resort.
• Retin-A. Reimbursable when prescribed by a physician for treatment of acne, but not wrinkles.
• Rogaine. Reimbursable when prescribed by a physician for a specific medical condition, but not for cosmetic purposes (that is, to stimulate hair growth).
• Schools, special. Expenses paid to a special school for a mentally impaired or physically disabled person are reimbursable if the main reason for using the school is its resources for treating the disability. This includes the cost of a school that:]

• Scientology "audits." Amounts paid to the Church of Scientology for "audits" do not qualify as expenses for medical care.
• Sexual counseling. Expenses for counseling regarding sexual inadequacy or incompatibility are reimbursable if the counseling is provided to a husband and/or wife by a psychiatrist.
• Smoking program. The cost of a program to stop smoking for the improvement of general health generally is not reimbursable, even if a doctor suggested the program. However, if a physician to treat another medical condition (e.g., emphysema) prescribes attendance at a stop-smoking program, the expense should be reimbursable. The physician should substantiate this treatment.
• Spa or resort. Although a visit to a spa or resort may be prescribed by a physician for medical treatment, only the costs of the medical services provided are reimbursable, not the cost of transportation. (See Transportation and Trips.)
• Special foods. The costs of special foods and/or beverages—even if prescribed—that substitute for other foods or beverages which a person would normally consume and which satisfy nutritional requirements (such as the consumption of bananas for potassium, for example) are not deductible. However, prescribed special foods or beverages are reimbursable if they are consumed primarily to alleviate or treat an illness or disease, and not for nutritional purposes. Special foods and beverages are reimbursable only to the extent that their cost is greater than the cost of the commonly available version of the same product.
• Sterilization. The cost of a legal sterilization (a legally performed operation to make a person unable to have children) is reimbursable.
• Substance abuse. See Alcoholism and drug abuse.
• Swimming lessons. See Dancing lessons.
• Telephone. The costs of purchasing and repairing special telephone equipment that lets a hearing-impaired person communicate over a regular telephone are reimbursable.
• Television. The cost of equipment that displays the audio part of TV programs as subtitles for the hearing-impaired is reimbursable. This may include an adapter that attaches to a regular TV or the cost of a specially equipped TV in excess of the cost of the same model regular TV set.
• Therapy. Amounts paid for therapy received as medical treatment are reimbursable. Payments made to an individual for special exercises administered to a mentally retarded child are also reimbursable. These so-called "patterning" exercises consist mainly of coordinated physical manipulation of the child`s arms and legs to imitate crawling and other normal movements. (Also see Fitness programs.)
• Transplants. Payments for surgical, hospital, laboratory and transportation expenses for a prospective or actual donor of a kidney or other organ are reimbursable.

Transportation. Amounts paid for transportation primarily for, and essential to, medical care are reimbursable (except as provided below). These include: