Our team at BuyFSA collectively brings over 25 years of direct experience with tax-free health benefits. Unfortunately, Google and other search engines do not. This lack of understanding leads to published FSA articles with misleading to flat-out wrong information. Below, we'll provide a comprehensive guide to FSA Eligibility.
Who determines which products are FSA-eligible?
The IRS provides broad categories of FSA-qualified medical expenses in two publications:
This code offers guidance on eligible product categories and gives definitions around types of medical products that qualify under tax-free health accounts including FSAs, HSAs, and HRAs.
This document offers guidance around qualified tax-deductible medical expenses. Tax deductibility and FSA eligibility are not 1:1 the same and should be considered a reference point only.
Guidance, not rules
The IRS provides broad guidance and stops short of listing specific FSA-eligible products. An IRS-appointed industry group interprets this guidance and lists products accordingly. These interpretations are used to create specific rules for FSA product and service eligibility.
There are two distinct classifications requiring interpretation: Products and Services. Both products and services are extrapolated into more detailed categories with examples. Check out the full FSA Products and Services Eligibility List. From there, the eligibility criteria break down into a list of specific FSA approved items.
Eligibility Criteria for Managing FSA Transactions
There is a system that tracks all qualified FSA transactions. Coined the Inventory Information Approval System, this is a point-of-sale technology references qualified service categories and eligible products for every FSA debit card retail transaction. The system is widely implemented, with over 30,000 participating drugstores, grocery stores and national chains in the United States (Pro Benefits).
FSA Debit Cards for FSA-eligible Transactions
Almost 80% of accounts have an FSA debit card tied to them (Visa). These cards reference the FSA inventory system at the point of sale to check for eligibility. Regular credit cards and debit cards will not connect to the system (and require manual receipt submission for approval).
Services transactions: for an FSA card to transact, the merchant category must fall under a defined FSA-eligible service categorization.
Product transactions: for an FSA card to transact, the eligibility database needs to list the individual product's UPC (barcode).Tip: Download the BuyFSA app to access a free-to-use FSA Product Eligibility Scanner (scan products in-store and check to see if they're FSA qualified).
What is the definition of FSA-eligible?
FSA-eligible products and services are qualified medical expenses that would not be used but for the medical need.
Qualified Medical Expenses
The IRS gives the following definition for "qualified medical expenses":
"Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body." (IRS Publication 502)
Of the text above, all is straightforward with the exception of "prevention of disease". General preventive care is actually ineligible which leads to some confusion. The more formal definition under FSA rules is as follows:
"An expense is considered to prevent disease only if there is present existence or an imminent probability of developing a disease, physical defect, mental defect, or illness." (Benefit Allocation Systems).
"Imminent probability" is the limiting factor that prevents certain general health products like toothpaste and floss from becoming FSA-eligible.
The "But for" stipulation
The "but for" stipulation is a strictly enforced FSA eligibility rule. FSA qualification is restricted to expenses having a primary use for the qualified medical expense. Any secondary benefit falls outside of the qualified medical expense definition and is considered dual-purpose.
What is a dual-purpose item?
Dual-purpose products have both an FSA-qualified feature and a disqualifying feature. This disqualifying feature makes the product ineligible for purchase with an FSA. The FSA product eligibility list excludes dual-use products despite the otherwise eligible qualifying factors.
Here are a few examples of dual-purpose products:
- Activity trackers - Activity trackers like Fitbit include disqualifying dual-purpose features such as the watch and step counters.
- Toothbrush - Brushing teeth provides a medical benefit, but the IRS considers routine use a general health benefit
- Percussion Massagers - As of 2023, percussion massagers like Theragun are no longer considered dual-purpose, and are eligible to purchase with an FSA.
A note on FSA eligibility misinformation:
Making affirmative eligibility claims to sell ineligible products can benefit retailers monetarily. Similarly, blogs post misleading content (sometimes unknowingly) to rank higher in search results. Google and other search engines are not the best at determining which information is accurate, especially when it comes to claims made about FSA eligibility with a letter of medical necessity.
There are no restrictions on which products receive a letter of medical necessity. However, there are very strict rules for FSA eligibility. Therefore, it is not fair to say that a product is "FSA eligible with a letter of medical necessity." Rather, these are two distinct classes of products.
Let's look at the activity tracker example which is not listed on the official FSA product eligibility list. If you attempt to purchase an activity tracker or similar product with your FSA, you the risk of having your claim denied. Even if you provide a letter of medical necessity, the claim still may not get approved. You'll forego any tax savings and owe out-of-pocket dollars to reimburse your FSA for improper use.
Can I get a letter of medical necessity to purchase a dual-purpose item like a Fitbit?
You can get a letter of medical of necessity for many items, but that does not mean your FSA administrator will reimburse the purchase. For dual-purpose purchases such as a Fitbit, there is a high chance the claim is denied post-purchase.
Misleading websites for fringe medical needs
FSA blogs and retailers are popping up all over the internet, misleading people with FSA eligibility claims that are just wrong. For example, a retailer may insist a product is eligible, but in the fine print (or not at all) have written: "You'll need to get a letter of medical necessity to have your purchase approved." This is bad advice; here is why:
- The doctor writing the letter may not consider FSA dual-purpose criteria which still applies and can result in an FSA claim denial
- Letters of medical necessity often require plan-holders to purchase out of pocket and bypass the FSA inventory information system (priming you for a post-purchase audit)
- FSA administrators review all submissions, and they are the ones that actually choose to deny or accept any letter of medical necessity (and they, not the doctor, make the final FSA approval decision)
Per all the aforementioned points, purchasing any item with a letter of medical necessity cannot guarantee FSA reimbursement for items that teeter on the fringe of necessity.
When does getting a letter of medical necessity make sense?
There are valid reasons to get a letter of medical necessity with FSA coverage. With proper reasoning, the risk of claim denial is drastically reduced. And those with true medical needs shouldn't be discouraged to file an FSA claim, especially if the dollar value is significant. Below is an exemplary list of required inclusions for an FSA letter of medical necessity:
- Patient name
- Participant name
- Participant employer
- Username or last 4 digits of Social Security Number
- Medical condition
- Describe recommended treatment (frequency and dosage)
- Duration of the treatment
- Provider's name
- Provider's signature
(Source: FSAFEDS FAQ)
How is it possible to guarantee FSA eligibility?
Retailers that directly connect with the FSA Inventory Information Approval System can ensure product eligibility. The connected system links to the master FSA product eligibility database with UPC bar codes for each approved product. The UPC barcodes referenced at point-of-sale allow FSA card transactions to clear over FSA-equipped card networks.
All products on BuyFSA.com and the BuyFSA app use product Universal Product Codes (UPCs) to validate FSA eligibility for every listed product. All validated products have an accompanying FSA Product Approval Certificate that outlines eligibility criteria and includes the verified eligible UPC numbers.