PPE is Now A Qualified Medical Expense

Jessica Waltman – Principal, Forward Health Consulting

According to new guidance from the Internal Revenue Service (IRS), the personal protective equipment (PPE) people use to help stop the spread of COVID-19 is now a deductible medical expense under IRC Section 213(d). Common items that we all need to buy like masks, hand sanitizer, and sanitizing wipes, could now be part of someone’s medical expense deduction on their personal income tax return. These items could also count as reimbursable expenses under certain account-based health coverage options.

Employers that offer employees access to health flexible spending arrangements (health FSAs), health reimbursement arrangements (HRAs), Archer medical savings accounts (Archer MSAs), and/or qualified high deductible health plans (HDHPs) that pair with health savings accounts (HSAs), need to take note of this change. Now, plan participants may be able to use funds from those accounts to pay for PPE.

Another consideration for group plan sponsors is if coverage offerings include either an HRA, a health FSA, or both, then a plan amendment could be necessary to make PPE a reimbursable expense. Employees with HSAs and Archer MSAs will automatically be able to use their HSA or MSA monies to pay for PPE, but health FSA and HRA participants will need their employer to decide if PPE is on the reimbursable expense list.

Employers that need to make a plan amendment will also have to decide if they want to make a retroactive change or if they want it to apply the change to expenses moving forward. Those that opt for retroactive eligibility have until December 31, 2022 (at the latest) to amend their plan documents. They can make PPE a reimbursable expense dating all the way back to January 1, 2020 or decide to make PPE a reimbursable cost through a health FSA or HRA at any time moving forward.

If a plan amendment is required, the IRS gives group sponsors up to two years to make the change, as long as they operate the plan consistently between the effective date of the change through the date the amendment is adopted. The guidance states that amendments must be adopted by the last day of the first calendar year that begins after the end of the plan year in which the amendment is effective.  

Here are some examples of how this will work in practice:

  1. A group with a January 1 plan year decides to make PPE a reimbursable expense for health FSA participants. They want to make the change retroactive back to March 1, 2020, when the pandemic really hit the United States. In this case, they need to finalize their Section 125 plan amendment by December 31, 2021.
  2. A business offers employees PPO coverage paired with an HRA, and their new plan year starts on June 1. Upon hearing of this guidance, the group decides to let participants get HRA reimbursement for PPE starting with the new plan year. That group would need to complete their plan amendments by December 31, 2022.

If an employer that offers employees access to an HRA or health FSA doesn’t want to include PPE on the list of reimbursable expenses, then they do not have to do so.  For example, an employer that uses an HRA to offset each employee’s plan deductible might not want to amend their plan to include PPE as a reimbursable expense. That choice is completely permissible. If a group offers access to account-based coverage options that may be affected by this guidance, best practice would be to reach out to the entity used to administer reimbursements to make sure that they will be processed correctly. Communicating the change to employees will also be key.

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