IRS Expands List of Eligible Medical Expenses and HSA-Qualified Preventive Care

On Thursday, October 17, 2024, the IRS published two notices expanding eligible expenses and preventive care under the tax code.

• Notice 2024-71 clarifies that condoms are a medical expense under §213(d) which can be reimbursed by a health flexible spending account (FSA), health savings account (HSA), or health reimbursement arrangement (HRA).
  • An effective date was not announced for this change. Contact your TPA for more information.
• Notice 2024-75 expands the list of HSA-qualified preventive care expenses effective plan years beginning on/after January 1, 2023, to include “over-the-counter (OTC) oral contraceptives (including emergency contraceptives) and male condoms” with or without a prescription.
  • OTC oral contraceptives qualify “for a covered individual potentially capable of becoming pregnant”
  • Male condoms qualify “regardless of the gender of the individual covered under the HDHP who purchases them”
  • Note this supersedes previous Notice 2018-12 regarding guidance that male condoms were not HSA-qualified preventive care
  • However, the guidance in that 2018 notice that male sterilization is not HSA-qualified preventive care remains unchanged

The second notice also clarifies that HSA-qualified preventive care includes:

• All types of breast cancer screenings even without a diagnosis retroactive to April 12, 2004.
• Continuous glucose monitors for individuals diagnosed with diabetes retroactive to July 17, 2019.
• Insulin products for plan years beginning on/after January 1, 2023, without the need for a diagnosis of diabetes or to prove prevention of the development of a secondary condition.
  • Previously, Notice 2019-45 required a diagnosis of diabetes to be HSA-qualified preventive care.

Plan materials that describe eligible expenses as those identified under §213(d) for general medical expenses eligible for reimbursement and §223 for HSA preventive care should not have issue an amendment.  However, FSAs and HRAs that specifically list eligible expenses should be modified by Plans desiring to adopt these changes.

Employer/Plan Sponsor Action

1. Groups offering an FSA, HRA or HSA should consider notifying their participants of these new changes.
   
   Note: While notification via a plan amendment is only necessary for those plans that list eligible expenses (as opposed to broad definition of 213(d) for general medical expenses), it is a good idea to communicate the changes to plan participants.
2. Amend Plan Documents, if necessary. Plans that use the broad definition of 213(d) for general medical expenses will not need to amend their plan. However, FSAs and HRAs that list covered expenses specifically will need to be amended if the group wishes to adopt these changes. Subsequently, a Summary of Material Modifications (SMM) will need to be distributed to plan participants.
3. Update Open Enrollment Materials: It’s a good idea to update enrollment materials to highlight these changes, although, not required by law.
4. Coordinate with Third-Party Administrators (TPAs) and Insurers: Plan sponsors should ensure that third-party administrators or insurance companies managing their HDHPs are informed of the changes. This can also involve updating systems to accommodate new benefits without requiring deductibles.

Contact your IMA broker representative with any questions.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information. This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.

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