Annrose M. Guarino | 4/22/2005 12:24:24 AM
Costs associated with obesity treatment will be easier to bear for those who itemize their deductions, according to LSU AgCenter food and nutrition professor Dr. Annrose Guarino.
Uncompensated amounts paid by individuals for participation in a doctor-prescribed weight-loss program to treat diseases, including obesity, are tax-deductible expenses. The cost of food is not deductible, however, since people buy food whether or not they’re trying to lose weight.
Guarino explains that deductible medical expenses can include bariatric surgery, approved anti-obesity agents and nutrition counseling services. Before April 2002, weight-loss programs were considered to be deductible only if a doctor recommended them as a treatment for heart disease or other co-morbid conditions.
Since then, however, the Internal Revenue Service has defined obesity as a disease, which makes it eligible for deductible medical expenses. To take the deduction, a taxpayer has to participate in a weight-loss program for medically valid reasons. Simply joining a gym or a weight control program to improve your appearance, general health and sense of well-being, without a physician's guidance, does not validate a deduction.
The tax code indicates that total medical expenses must exceed 7.5 percent of an individual’s adjusted gross income (AGI) and can be taken only by taxpayers who itemize their deductions. This means that a person with an AGI of $50,000 would be able to deduct medical expenses that exceed $3,750. Many individuals do not, however, have enough medical expenses to qualify for a deduction. According to an IRS study, only 5 percent of taxpayers typically deduct medical expenses.
Guarino recommends consulting with professional tax preparers for advice on allowable deduction.
Individuals who are beneficiaries of health savings vehicles of which they, their family members or employers have set aside pretax dollars also may also benefit because these vehicles use the IRS definitions of allowable medical expense deductions. Savings plans include flexible spending accounts, health reimbursement arrangements and health savings accounts (HSAs).
"This means consumers achieve savings on medically valid nutrition services by using their pretax health reimbursement account dollars," Guarino explains.
In particular, the same expenses that are allowable for tax deductions for weight-loss programs also apply to HSAs. Like 401(k) plans but for healthcare, HSAs allow individuals to accumulate dollars to spend on future health care costs.
Congress passed into law the creation of HSAs in the Medicare Prescription Drug, Improvement and Modernization Act, effective January 1, 2004. The statute requires that HSAs be linked with at least a $1,000 deductible health plan for individuals and at least a $2,000 deductible health plan for families, which are referred to as a high-deductible health plan (HDHP). An added feature of HSAs is that money is not lost if it is unused at the end of the year—the money can be rolled over and used for health care costs in future years.
The IRS issued guidance on March 30, 2004, about HSAs for both group and individual insurance markets. Notice 2004-23, which is part of the guidance, provides "safe harbor" enabling HDHPs offered alongside HSAs to offer a range of preventive care benefits without those benefits satisfying the minimum deductible that the law requires for HDHPs linked with HSAs. The notice provides a list of types of preventive care that would qualify, including health routine prenatal and well-child care, annual physical examinations, obesity weight-loss programs and a range for screenings for cancer, heart and vascular disease, infectious diseases, mental health conditions and other conditions. This means that individuals don’t have to reach the deductible to start withdrawing money from the HSAs to cover medical nutrition therapy (MNT) for weight loss.
Treasury Department benefits tax counsel William F. Sweetnam has said that the Treasury’s view in crafting the preventive care guidance was that preventive care generally does not include services that "treat an existing illness." The notice states that "safe harbor" is not limited only to the listed services and that the IRS requests comments "on the appropriate standard for preventive care, and in particular, recommendations concerning any benefit or service that should be added to those set forth in this notice and appendix."
The IRS is also requesting comments regarding "the extent to which benefits provided by an employee assistance program, mental health program or wellness program may quality as preventive care, including comments regarding the scope of treatments provided as benefits through counseling and health assessments."
Although Medicare-eligible individuals cannot contribute to an HSA, there is no language in the current IRS tax code that would prohibit them from using a pre-established HSA for a doctor-prescribed weight loss program or other medical nutrition therapy services. Other limitations and constraints apply, however, and will dictate eligibility and qualifications to set up HSAs or other flexible spending and health reimbursement accounts.
Again Guarino recommends talking with your employer and professional tax adviser to determine if you qualify for an HSA and to determine other possible restrictions.
"The IRS definition of medical expenses and the overall ruling are remarkable," Guarino says, explaining, "It demonstrates that one arm of the federal government formally recognizes obesity as a disease." She notes that this action may help other governmental agencies such as the Center for Medicare & Medicaid Services review their policies on obesity treatment and services.
The nutritionist says dietetic professionals in outpatient clinics and in private practices now may inform their clients about possible tax benefits. Although they cannot offer tax advice, they may advise clients that:
1. Medical nutrition therapy (MNT) services may, in certain circumstances, be tax deductible for medically appropriate diagnoses made by a physician.
2. Pretax dollars in flex spending, health reimbursement arrangements and health savings accounts may be used to cover MNT services.
3. The client’s tax adviser should be consulted to determine tax deductions and pretax cost savings applicable to MNT services.
Guarino says she hopes this potential tax relief lowers the obstacles for many people who desperately need financial help to treat obesity and associated co-morbid conditions.
She hopes, too, that Congress and the Department of Health and Human Services will follow the IRS lead and take the necessary steps to declare obesity a disease, so more citizens can take advantage of medical nutrition therapy services and other useful interventions.
"Obesity is preventable, but that shouldn’t be a reason to deny insurance coverage to treat the disease," the nutritionist asserts.
For information on related family and consumer topics, visit the FCS Web site at http://www.lsuagcenter.com/Inst/
Extension/Departments/fcs/. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.