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February 18, 2011

IRS Treats Breast Pumps and Lactation Supplies as Medical Care Expenses

On February 10, 2011, the Internal Revenue Service (IRS) announced that breast pumps and supplies that assist lactation are medical expenses under Internal Revenue Code §213(d).¹ As a result, expenses for these items may now be reimbursed by health plans, including Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). The announcement does not include an effective date, but appears to take effect immediately.

Background

Previously, in a letter to the American Academy of Pediatrics and other organizations, the IRS had taken the position that the cost of purchasing or renting a breast pump was not a medical care expense even though the mothers' use of a breast pump may have health benefits for themselves and their babies.² The IRS letter refers to the general rule for reimbursement, which is that medical care does not include goods or services that are merely beneficial to general health and do not mitigate or treat a disease.

The New IRS Position

The IRS now concludes that breast pumps and supplies, like obstetric care, affect a structure or function of the lactating woman's body and are, therefore, medical care expenses. The IRS will revise Publication 502 (Medical and Dental Expenses) to include this information.

The new Affordable Care Act prescription requirement applicable to over-the-counter medications and drugs does not apply to these expenses as breast pumps and supplies are not drugs or medications.³ Because the latest IRS announcement does not distinguish between breast pumps that are purchased or rented, it would appear that both types of expenditures qualify without a prescription.

Implications for Plan Sponsors

Plan sponsors with FSA or HRA plan documents stating that the plan generally reimburses expenses that qualify as medical care expenses under §213(d) may reimburse these expenses immediately, even if incurred prior to the release of this announcement. Plan sponsors with more restrictive FSA or HRA plan terms may need to amend the plan documents in order to reimburse these expenses. Individuals who contribute to an HSA can consider the expenses reimbursable from those accounts. Sponsors of group health plans that do not currently cover breast pumps and supplies should determine whether they will now begin to cover costs related to breast pumps and supplies under the medical plan in the future. They may wish to consider how the supplies could be covered, under what conditions, whether the equipment would be bought or rented, and whether medical necessity would be a factor in allowing coverage.

Plan sponsors that decide not to cover these items should consider amending the plan documents to specify that coverage is not available.

• • •

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on the interpretation and application of IRS announcements. The Segal Company can be retained to work with plan sponsors and their attorneys on compliance issues.

1

IRS Announcement 2011-14 is available on the IRS Web site. (Return to the Capital Checkup.)

2

This letter is available on the Academy's Web site. (Return to the Capital Checkup.)

3

For more information on the prescription requirement, see The Segal Company's January 10, 2011 Capital Checkup, "IRS Modifies Rules on Paying for Over-the-Counter Medications with Debit Cards". (Return to the Capital Checkup.)

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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