The IRS issues new guidance regarding Health Savings Accounts (HSAs):    On December 22, 2003, the Treasury Department and the Internal Revenue Service issued the first of what will likely be several rounds of Health Care Savings Account guidance. Notice 2004-2 provides basic information in Q&A format, but it does not address many of the most complex HSA issues. It is anticipated that these issues will be addressed in later notices. Click here to download a copy of the Treasury Department's press release or here for a complete copy of Notice 2004-2 in Adobe PDF format.


Federal Reports Highlight Issues in Health Care Quality and Disparities in Access to Care: The Department of Health and Human Services has released two reports that represent the first comprehensive national effort to measure the quality of health care in the U.S. and assess disparities in access to and utilization of care. The reports, available on the Agency for Healthcare Research and Quality (AHRQ) website (http://www.qualitytools.ahrq.gov), provide baseline views of the quality of care and differences in use of health services by different populations.


Over-The-Counter Drugs Now Reimbursable by Health Care Spending Accounts:    On September 3, 2003, the Treasury Department and the IRS issued Revenue Ruling 2003-102 which announced that over-the-counter (OTC) drugs can be paid for with pre-tax dollars through health care flexible spending accounts. Click here for a summary of the most frequently asked questions about OTC drugs and health care flexible spending accounts or here to download a full copy of IRS Revenue Ruling 2003-102 in Adobe PDF format.


Home Exercise Equipment for Obesity:    On September 30, 2003, the IRS released Information Letter 2003-0202 addressing the cost of home exercise equipment as a deductible medical expense when recommended by a physician to treat obesity. IRS concludes that the cost of equipment for use in the home, if required to treat an illness diagnosed by a physician, is deductible provided that the expense would not have been incurred "but for" the illness. IRS restates its position that an expense that is merely beneficial to the general health of an individual is not a medical care expense. While the Information Letter addresses the deductibility of a medical care expense, the guidance is also relevant to reimbursement under a health flexible spending account (FSA). The Information Letter sets forth three criteria that must be met for the home exercise equipment to be considered a medical expense:

1. The individual must have an illness, such as obesity, that is diagnosed by a physician.
   
2. The individual must establish that the purpose of the exercise equipment is to treat the illness rather than to promote general health, and
3. The individual must establish that the exercise equipment would not have been purchased "but for" the illness.

Please contact the Flexible Benefits Department at IMS for additional details on how these types of expenses are covered under a Section 125 health flexible spending account.