The Internal Revenue Code (IRC) provides favorable tax treatment for reimbursements or payments made under employer-provided group health plans for qualified medical expenses of employees, spouses, and dependents. Generally, funds from health savings accounts (HSAs), health flexible spending arrangements (health FSAs), and health reimbursement arrangements (HRAs) can be used to pay for qualified medical expenses.
Qualified medical expenses can include expenses that were not paid by the group health plan because they were subject to copays, deductibles, or coinsurances. These amounts are also known as “otherwise unreimbursed medical expenses.” Tax-advantaged accounts that reimburse expenses other than qualified medical expenses risk losing their preferred tax treatment status and could subject account holders to additional tax consequences.