Trade orgs ask IRS to allow flex spending accounts to go toward supplement purchases

By Hank Schultz

- Last updated on GMT

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Related tags coronavirus COVID-19 Dietary supplements industry Dietary supplements

A group of trade associations has asked the IRS to allow the use of tax advantaged medical savings accounts to be used for the purchase of dietary supplements, a move that the group says could support consumers’ health as well as boost the economy.

The letter, which was sent on Friday, was signed by the heads of the American Herbal Products Association, the Consumer Health Products Association, the Council for Responsible Nutrition and the United Natural Products Alliance.

The letter asks the Internal Revenue Service to make what amounts to an administrative change in the way that it defines what products can be purchased with the accounts.  Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both ways in which consumers can put aside money to pay for medical expenses without having to pay income tax on the funds.  The catch is that the money can only be used to pay for qualified expenses.

The letter sent to the IRS asks that the agency now include dietary supplements on that list, which includes drugs and medical devices, copays for doctor’s office visits, etc.

Effort to get legislation passed

Steve Mister,  president and executive director of the Council for Responsible Nutrition, said this idea has been introduced in Congress as potential legislation over the past three years.  The decision to try to get an administrative law put into place was taken in light of the immediate need Americans have to deal with the current disease crisis.

And the IRS could be seen as being prepped to make such changes.  The letter notes that the recent stimulus package reversed a stricture that had been put into place in 2010 that had taken OTC medical products off the list of what HSA/FSA money could be used for.  Mister, who had experience with that development when he was with CHPA, said that was part of the complicated negotiations around the inception of the Affordable Care Act under the Obama administration.  The thinking was that if consumers had to use post tax dollars to pay for those products, they’d contribute less to those kinds of accounts, leaving more funds on which income tax could be collected, thus helping to ‘pay’ for the ACA.

“The stimulus package has now affirmatively allowed over the counter medicine,”​ Mister said. “We have seen a real interest on the part of consumers to be healthy and we’ve seen a spike in supplement sales.”

Mister said there has been more of an emphasis on trying to get this change done as actual legislation because it would then be more permanent.  The episode with the OTC products getting shunted aside in 2010 shows that administrative law changes might be more seen as potentially more ephemeral.

“What the history of these accounts has shown is that more and more Americans are starting to see these accounts as good ways to pay for medical expenses.  They tend to put money into these accounts depending on what they can afford,”​ Mister said.

Trade orgs: DSHEA definitions match what’s already in tax code

The letter specifically asks the IRS to revise its publication 502, which removed nutritional supplements from the qualified list starting in tax year 2000.  The letter notes, though, that in 1954 the IRS defined medical care as “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.” 

According to the trade associations’ letter, this definition seems to match well with the definition of a dietary ingredients used in supplements under DSHEA.  Dietary ingredients “affect the structure or function in humans,”​ or “act[s] to maintain such structure or function.” 

Mister said the associations were careful not couch the language of the letter as addressing the many problems lower income Americans face in the current crisis.

“We have been careful not talk about these HSA/FSA changes as if they are going to get rid of food deserts and address malnutrition among the very poor.  This is really about the middle class,” he said.

Separately, the Natural Products Association has issued a press release saying that it has advocated for similar changes to HSA/FSA accounts.

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