“Food is medicine,” says the U.S. Health Department.
“Not so fast,” says the IRS.
Caught in the middle: U.S. consumers with dietary issues that require special foods or dietary supplements.
And unless Congress intervenes, it’s going to be up to the Tax Court to work things out.
Here’s what’s happening, and how it could affect you.
Background
For many years, Congress has allowed taxpayers to partially deduct certain medical and dental expenses against their ordinary income for the year.
The same goes for health savings accounts (HSAs), flexible spending accounts (FSAs), and Medicare Advantage Medical Savings Accounts (MSAs): withdrawals from these tax-advantaged savings vehicles are generally tax-free – as long as they are used to pay qualified medical expenses as defined in IRS Publication 502.
Meanwhile a small cottage industry has arisen: a number of healthcare providers are advertising on the internet, offering to provide letters of medical necessity for specialized diets, food costs, gym memberships, and supplements.
The idea is that these letters verifying these items as medically necessary expenses can be used to support the use of HSAs and FSAs to pay for these diets, or to support an itemized deduction in the event of an IRS audit.
All you need to do, in some cases, is fill out a brief questionnaire. The doctor will then provide you with a letter of medical necessity for your proposed treatment.
For a fee, of course.
In December of last year, the Washington Post ran a very positive profile of one of these companies, Truemed.
In the article, the Post informed its readers that “you can now use your pretax dollars to pay for certain types of healthful foods, gym memberships and even fitness trackers.”
Truemed has recently partnered with a variety of other health and wellness-related firms to help potential customers obtain letters of medical necessity, ostensibly qualifying their products and services for tax-free purchases via HSAs, FSAs, and MSAs. Vendors include meal kit company Daily Harvest, CrossFit, Barry’s, CorePower Yoga, InsideTracker, and Viome.
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The IRS Strikes Back
But the IRS has responded, claiming that the medical necessity of some of these diets are dubious. Some of them, argues the IRS, are clearly intended for general wellness purposes, and do little or nothing to treat specific, diagnosed medical conditions.
This makes them personal expenses, not qualified medical expenses, says the IRS. And personal expenses are not deductible.
Furthermore, the IRS claims that at any rate, the doctor’s letter of medical necessity needs to be based on more than a couple of emails. They do that for a letter of medical necessity to be valid, it should be based on a personal, individual examination – preferably in person.
And in March, the Washington Post had to run a very different story, backtracking on the earlier story, and highlighting the fact that the IRS was rejecting many of the same claims highlighted in the December 2023 piece, on the grounds of medical necessity.
The Government’s Case is Absurd
The IRS policy is a violation of common sense, says TrueMed CEO Calley Means.
“The IRS has taken the absurd position of incentivizing people to take high-cost diet pills like Ozempic, which is an HSA-eligible expense while denying deductions for people trying to buy healthy foods or Crossfit memberships to lose weight naturally, or prevent obesity in the first place, he says.
Means also points out that the IRS will approve tens of thousands in deductions and tax-free withdrawals for bariatric surgery for obese people, but it won’t approve a meal plan that can help struggling people avoid needing the surgery in the first place.
It will approve expenses to amputate a limb, but not for a prepared meals plan and a fitness club membership to help a Type 2 diabetic keep their a1c low and avoid needing hospitalization altogether.
How to Pay For Dietary Products, Foods, And Exercise Materials With Tax-Free Dollars
If you have an HSA or want to use your employer’s FSA, or you want to deduct these costs as an itemized expenditure on your Schedule A, you may have to jump through some hoops.
First of all, it’s best to have your physician – one who’s examined you – write your letter of medical necessity. This will be stronger than relying on an online questionnaire from a vendor who’s never seen you in person.
Second, it’s not enough for your doctor to just write a letter stating that in his or her professional opinion, the expenditures are medically necessary.
The doctor has to be very specific about how the proposed diet, treatment, equipment, or program helps cure or alleviate a specific, codable medical condition.
Your doctor must explain the nexus between your diagnosed condition and how the expense addresses it, beyond general wellness purposes.
The letter should also address how the cost of their recommended medically necessary treatment plan is greater than those faced by the general population.
How To Use Your HSA For Food Costs
When it comes to food expenditures, the IRS will only approve a tax deduction or tax-free HSA or FSA disbursement in rare cases. If the food or other item is essentially a substitute for ordinary nutritional needs, and does not cost significantly more than conventional foods, the IRS is not likely to approve it.
For the food or special preparation costs to qualify, the cost must be in excess of normal expenditures for healthy people with normal metabolism, and prescribed for the sole purpose of treating or alleviating a specific medical condition.
According to IRS guidelines, special food costs qualify as a deductible medical expense only if it satisfies these three criteria:
- The food doesn’t satisfy normal nutritional needs;
- The food alleviates or treats an illness, and;
- The need for the food is substantiated by a physician.
Use Your HSA For Fitness Club Memberships
It may be tough to get a general fitness club membership fee past an IRS audit if you try to deduct it.
But you can get a little creative. For example, while you can’t deduct your general membership fee itself, you can potentially deduct the cost of a specialized weight loss program offered within the fitness club.
Again, for the deduction to survive an audit, you will need a letter from a doctor who has examined you personally that the weight loss program is medically necessary to treat or alleviate a specific diagnosed medical condition.
Don’t worry: obesity is one of them.
So if you’re overweight, it should be a no-brainer!
But obesity isn’t the only reason a weight management or fitness program might be necessary.
However, if the weight loss program is undertaken for general wellness purposes, and not to treat or alleviate a specific diagnosed condition, it won’t qualify under current rules.
That’s where documentation comes in: Your doctor can also write a letter of medical necessity describing how the program is necessary to treat any number of possible conditions, too, such as heart disease, hypertension/high blood pressure, and diabetes.
Note that the IRS specifically allows acupuncture, chiropractic, and Christian Scientist treatment costs as a deductible medical expense in Publication 502.
Nutritional Supplements
You can expect the IRS to look carefully at deductions or HSA/FSA expenses for nutritional supplements, vitamins, herbal supplements, “natural medicines.”
However, in many cases, you can justify the deduction.
As with food costs, described above, you’ll need to show that a medical professional has recommended these supplements as medically necessary to treat or alleviate a specific diagnosed medical condition.
Again, you should get a letter of medical necessity from a doctor that has examined you in person.
This letter should specifically explain how the prescribed substance cures, mitigates, or alleviates a specific diagnosed condition.
The letter should also explain how the prescribed supplement is not just for general wellness purposes.
Note: The letter of medical necessity does not have to be written by an MD. You can also get it from a nurse practitioner, chiropractor, dietitian, or other healthcare provider acting within his or her professional expertise.
LEARN MORE: How You Can Use Your HSA To Pay For Nutritional Supplements
We Believe in Health Care Freedom
Frankly, Means is right.
The IRS has no place trying to substitute its own bureaucratic judgment for that of a medical doctor. The IRS conducts no medical review. And if it objects that the physician writing the letter has not examined the patient in person, neither has the IRS!
We regard the IRS inserting itself into a private medical decision between an individual and his or her doctor to be an egregious affront to medical privacy, liberty, and common sense.
It’s also counterproductive. Medicare is already under substantial financial pressure. Encouraging more people to eat healthy, exercise, manage their weight, blood pressure, diabetes, and take more care of themselves in general would contribute immeasurably to the fiscal health of this important federal program, and help balance the federal budget.
In the broad scheme of things, the IRS nickel-and-diming ordinary Americans by second-guessing their physicians’ recommendations that help them get healthier and stay out of the hospital is penny wise and pound foolish.
We encourage our clients to use every legal means or loophole at their disposal to stay healthy, save money, and safeguard their health care liberty and freedom.
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HSAs are Still a Great Idea
Even though the IRS has been challenging some of these questionable or debatable deductions, the health savings account is still one of the best tax advantaged savings vehicles in the tax code.
No other type of account matches the triple tax advantages of the HSA:
- Tax free contributions
- Tax-deferred growth
- Tax-free distributions, if used to pay for qualified medical expenses.
Additionally, HSAs are also a terrific retirement asset as well: once you turn 65, the usual 20% penalty on withdrawals goes away. You can then use the money for anything you like – you just need to pay the income tax, just as you do with a traditional IRA.
And you can still use your HSA to pay tax free and penalty free for health care expenses and even long-term care insurance premiums in retirement.
However, to contribute to a health savings account, you must be enrolled in a qualified high deductible health plan.
Alternatively, HSA for America is now able to help those in health sharing plans gain eligibility to contribute to a health savings account.
For help finding and enrolling in an HDHP or establishing an HSA, make an appointment for a free consultation with one of our experienced Personal Benefits Managers.
For Further Reading: Use Your HSAs to Pay for OTC Medication|Can I Use My HSA to Pay for Counseling and Therapy?
Wiley Long is the president of ColoHealth, and has been in the health insurance industry since 1987. He received his master’s degree in nutrition and exercise science at Colorado State University, and is passionate about individual healthcare freedom. Read more about Wiley on his Bio page.
