If you have an FSA (flexible spending account) or an MRA (medical reimbursement account), remember that not every expense is eligible for reimbursement. The IRS reminded us of this in two recent "information letters" specifically addressing medical care expenses and reminding plan sponsors that they are not required to pay or reimburse every item or service that qualifies as a medical care expense, and can limit payment or reimbursement to only certain expenses.
IRS Letter 2011-0055 considers a question from a health FSA participant who sought to have hearing aid expenses reimbursed through the FSA. The provides that while these expenses do qualify qualify as medical care, whether they will be reimbursed depends on the actual rules of the FSA itself. The letter also notes that the health FSA’s plan documents should identify the expenses that the plan will reimburse and can actually limit reimburseable expenses to those listed in the plan. Moreover, the plan should also specify that any unreimbursed medical care expenses that otherwise qualify for deduction under Code Section 213(d) can be deducted on the individual’s federal income tax return (to the extent that they exceed 7.5% of adjusted gross income.
IRS Letter 2011-0027 responds to an inquiry from a participant about whether an MRA could reimburse an annual “medical concierge” fee that provided better or faster access to medical services. According to the IRS, the MRA administrator had decided that the fee was not reimbursable. The IRS did not opine as to whether or not the fee would qualify as a medical care expense, but it did provide that that each plan can have its own rules as to which medical expenses it will reimburse and which are excluded from coverage. In other words, the plan can specify those Code Section 213(d) expenses it will allow. So just because the IRS says it may be allowed, a plan is not necessarily required to permit it.
Plan sponsors can decide to exclude certain expenses, whether or not they would otherwise constitute medical care expenses under Code § 213(d). This might be because the plan sponsors thinks they are too difficult to verify or are administratively difficult to reimburse (say because of difficulty in actually substantiating the charges). But ultimately it is up to the plan sponsor to decide. Then make sure the plans are administered in accordance with those limitations. So just because the IRS says it is an eligible medical expense does not mean a plan has to reimburse for it. Remember, the plan always follows its own terms. Just make sure you know what they are.