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IRS Updates Guidance on Preventive Care Benefits and Medical Expense Deductions
(Parker Tax Publishing November 2024)
The IRS issued a notice that includes over-the-counter oral contraceptives and male condoms in the list of preventive care benefits permitted to be provided by a high deductible health plan (HDHP) under Code Sec. 223(c)(2)(C) and clarifies that breast cancer screening and continuous glucose monitors are treated as preventive care under Code Sec. 223(c)(2)(C). The IRS also issued a notice that provides a safe harbor for the deduction for medical expenses under Code Sec. 213 for amounts paid for condoms. Notice 2024-71; Notice 2024-75.
Background
Code Sec. 213 allows an individual taxpayer an itemized deduction for expenses paid during the tax year, not compensated for by insurance or otherwise, for medical care to the extent that such expenses exceed 7.5 percent of the taxpayer's adjusted gross income. Code Sec. 213(d) provides, in relevant part, that the term "medical care" means 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. Under Reg. Sec. 1.213-1(e)(1)(ii), deductions for medical care expense are limited to expenses "incurred primarily for the prevention or alleviation of a physical or mental defect or illness" and do not include deductions for expenses that are merely beneficial to an individual's general health.
Amounts treated as expenses for medical care under Code Sec. 213(d) are eligible to be paid or reimbursed under a health flexible spending arrangement (health FSA), Archer medical savings account (Archer MSA), health reimbursement arrangement (HRA), or health savings account (HSA). However, if an amount is paid or reimbursed under a health FSA, Archer MSA, HRA, HSA, or any other health plan or otherwise, it is not a deductible expense under Code Sec. 213.
The determination of whether an expense is incurred for the prevention of disease, or other form of medical care under Code Sec. 213(d), depends upon the facts and circumstances. Thus, depending on the specific facts and circumstances, amounts paid for condoms may or may not be considered medical expenses under Code Sec. 213(d).
Code Sec. 223 permits eligible individuals to establish tax-favored Health Savings Accounts (HSAs). Among the requirements to qualify as an eligible individual under Code Sec. 223(c)(1) is that the individual be covered under a High Deductible Health Plan (HDHP) and have no disqualifying health coverage. As defined in Code Sec. 223(c)(2), an HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.
Generally, under Code Sec. 223(c)(2)(A), an HDHP is not permitted to provide benefits for any year until the minimum deductible for that year is satisfied. However, Code Sec. 223(c)(2)(C) provides a safe harbor for the absence of a deductible for preventive care. An HDHP may provide preventive care benefits without a deductible, or with a deductible below the minimum annual deductible otherwise required by Code Sec. 223(c)(2)(A). To be a preventive care benefit as defined for purposes of Code Sec. 223, the benefit must either be described as preventive care for purposes of Section 1861 of the Social Security Act (SSA) or be determined to be preventive care in guidance issued by the IRS.
Section 2713 of the Public Health Service Act (PHS Act) requires non-grandfathered group health plans and health insurance issuers offering non-grandfathered health insurance coverage to provide benefits for certain preventive services without imposing cost-sharing requirements. Notice 2013-57 provides that any item or services that is a preventive service under Section 2713 of the PHS Act will also be treated as preventive care under Code Sec. 223(c)(2)(C).With respect to women, preventive services under Section 2713 of the PHS Act include those provided for in comprehensive guidelines supported by the Health Resources and Services Administration (HRSA-Supported Guidelines).
Notice 2004-23 provides that preventive care under Code Sec. 223(c)(2)(C) includes, among other types of care, "Breast Cancer (e.g., Mammogram)" screening services. Notice 2018-12 states that, absent further guidance to the contrary, benefits for male sterilization or male contraceptives would not be considered preventive care. Notice 2018-12 bases its reasoning on the fact that, at that time: (1) male sterilization and male contraceptives were not preventive care under the SSA; (2) HRSA-Supported Guidelines did not provide for coverage of benefits or services relating to a man's reproductive capacity, such as vasectomies and condoms; and (3) no applicable IRS provided for the treatment of male sterilization or male contraceptives as preventive care within the meaning of Code Sec. 223(c)(2)(C).
Notice 2019-45 provides that specified services and items, including glucometers and insulin, are treated as preventive care under Code Sec. 223(c)(2)(C). However, the notice also provides that specified services and items are treated as preventive care only when prescribed to treat an individual diagnosed with the specified associated chronic condition (diabetes in the case of glucometers and insulin), and only when prescribed for the purpose of preventing the exacerbation of the chronic condition or the development of a secondary condition.
While Notice 2019-45 provides that glucometers are treated as preventive care, it does not directly refer to continuous glucose monitors, which similarly measure glucose levels.
The Inflation Reduction Act of 2022 (Pub. L. 117-169) amended Code Sec. 223 with respect to insulin products effective for plan years beginning after December 31, 2022, by adding a new Code Sec. 223(c)(2)(G) to provide that a plan will not fail to be treated as an HDHP by reason of failing to have a deductible for selected insulin products described in that section.
Notice 2024-71
In Notice 2024-71, the IRS provides a safe harbor under which amounts paid for condoms will be treated as amounts paid for medical care under Code Sec. 213(d). Because amounts paid for condoms are treated as expenses for medical care under Code Sec. 213(d), if the other requirements of Code Sec. 213(a) are met (for example, if a taxpayer's total medical expenses exceed the 7.5-percent adjusted gross income limitation and are not compensated for by insurance or otherwise), then amounts paid by the taxpayer for condoms for the taxpayer, the taxpayer's spouse, or the taxpayer's dependent are deductible as expenses for medical care under Code Sec. 213.
Additionally, because amounts paid for condoms are treated as expenses for medical care under Code Sec. 213(d), the amounts are also eligible to be paid or reimbursed under a health FSA, Archer MSA, HRA, or HSA. However, if an amount paid for condoms is paid or reimbursed under a health FSA, Archer MSA, HRA, HSA, or any other health plan or otherwise, it is not a deductible expense under Code Sec. 213.
Notice 2024-75
Notice 2024-75 expands the list of preventive care benefits permitted to be provided by an HDHP without a deductible, or with a deductible below the applicable minimum deductible for the HDHP, to include over-the-counter (OTC) oral contraceptives (including emergency contraceptives) and male condoms. According to the IRS, regardless of whether OTC contraceptives without a prescription are preventive care required to be covered without cost sharing under Section 2713 of the PHS Act, it is not appropriate to distinguish OTC oral contraceptives that are now available from other types of contraceptives that are considered to be preventive care for purposes of the safe harbor for the absence of a preventive care deductible under Code Sec. 223(c)(2)(C).
Consequently, preventive care for purposes of Code Sec. 223(c)(2)(C) includes all benefits for OTC oral contraceptives for a covered individual potentially capable of becoming pregnant, including, but not limited to, OTC birth control pills and emergency contraception, regardless of whether they are purchased with a prescription. Accordingly, a health plan will not fail to qualify as an HDHP under Code Sec. 223(c)(2) merely because it provides benefits for those contraceptives before such an individual satisfies the minimum annual deductible for an HDHP under Code Sec. 223(c)(2)(A).
The IRS also states that Notice 2024-71 and the expansion of the HRSA-Supported Guidelines to encompass male condoms have caused the IRS to revisit the position on male contraceptives as set forth in Notice 2018-12. Upon reconsideration, the IRS has determined that preventive care for purposes of Code Sec. 223(c)(2)(C) includes all benefits for male condoms, regardless of whether they are purchased with a prescription and regardless of the gender of the individual covered under the HDHP who purchases them. Accordingly, a health plan will not fail to qualify as an HDHP under Code Sec. 223(c)(2) merely because it provides benefits for male condoms (with or without a prescription) before an individual satisfies the minimum deductible for an HDHP under section 223(c)(2)(A).
In addition, Notice 2024-75 clarifies that:
(1) all types of breast cancer screening for individuals who have not been diagnosed with breast cancer are treated as preventive care under Code Sec. 223(c)(2)(C);
(2) continuous glucose monitors for individuals diagnosed with diabetes are generally treated as preventive care under Code Sec. 223(c)(2)(C); and
(3) the new safe harbor for absence of a deductible for certain insulin products in Code Sec. 223(c)(2)(G) applies without regard to whether the insulin product is prescribed to treat an individual diagnosed with diabetes or prescribed for the purpose of preventing the exacerbation of diabetes or the development of a secondary condition.
For a discussion of the deduction for unreimbursed medical expenses, see Parker Tax ¶82,501. For a discussion of health savings accounts, see Parker Tax ¶81,101.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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