Internal Revenue Code Compliance Question

Question:  Can a health flexible spending account (health FSA), health savings account (HSA), or health reimbursement arrangement (HRA) provide reimbursements for medical care expenses that an employee resells or plans to resell to someone else?

Answer:  No.  Health FSAs, HSAs, and HRAs cannot provide reimbursements for medical care expenses that an employee resells or plans to resell to someone for two reasons.  First, health FSAs, HSAs, and HRAs cannot reimburse expenses incurred by anyone other than the employee, their spouse, or their dependent.  Second, IRC section 213(a) specifically limits tax deductions to expenses “not compensated for by insurance or otherwise.”  If an employee were to resell an item that a health FSA, HSA, or HRA has reimbursed, then the item would be compensated for by “otherwise” since it is paid for by the resale buyer.