Consumer Financial Issues in Complementary and Alternative Medicine - Alternative Treatments and Income Tax

Written by National Center for Complementary and Alternative Medicine

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11. What are tax-exempt accounts for medical expenses?

How might they help me? A flexible spending arrangement (FSA; sometimes called a Flexible Spending Account) is a benefit provided by some employers that offers a way to help pay for out-of-pocket medical expenses, while reducing the employee's taxable income. With FSAs for health-related expenses, you choose an amount of pre-tax dollars to be set aside from your paycheck each pay period. This money is then available to reimburse certain health-related expenses that are not paid any other way, such as by insurance. You may need to supply documentation from a physician or other health care provider that the treatment is medically necessary. Note that the IRS does not allow the same expense(s) to be both reimbursed through an FSA and claimed as a tax deduction (see Question 13).

Another type of tax-exempt benefit for health-related expenses is a health savings account (HSA). Set up by Congress in December 2003, HSAs allow some individuals who participate in a high-deductible health plan to save money in a tax-free account. If you are eligible, you can use these savings to pay for your future medical expenses or those of your spouse or dependents.

The IRS has publications with more information about FSAs and HSAs. The Department of the Treasury also has a direct link to information about HSAs on its Web site. See "Resources" below for details.

12. Does the Federal Government have resources that might help me financially with my health-related expenses?

Currently, Federal health assistance programs are not set up to assist with CAM expenses specifically. They are intended to provide either direct support (direct payments) or indirect support (such as housing or child care credits, medical care at public clinics, or other social services) to people whom the Government determines to be in need. Examples include people who:

Have a low income and limited resources.
Do not have other medical insurance.
Have a disability.
Are part of a population that has difficulty accessing medical care.
Are at least 65 years of age.
Have served in the military.

There are Federal databases on the Internet that can introduce you to these programs. GovBenefits (www.govbenefits.gov) provides an overview and a self-test to help you identify whether any benefits are appropriate for your needs. FirstGov (www.firstgov.gov) has information on various health-related programs such as Medicare and Medicaid. FirstGov also has a database with information on benefits for seniors, www.firstgov.gov/Topics/Seniors.

The Social Security Administration (see "Resources") has two programs that pay benefits to people with disabilities:

Social Security Disability Insurance (SSDI) pays benefits to disabled workers who have paid into Social Security through payroll deductions and to certain family members.
Supplemental Security Income (SSI) pays benefits to people who are elderly or disabled and have low incomes.

The Department of Veterans Affairs (see "Resources") may be able to help with health care costs if you or a family member served in the Armed Forces. Certain CAM treatments may be covered, such as chiropractic and acupuncture.

The Health Resources and Services Administration (HRSA, see "Resources") has several programs:

While this program is not CAM-specific, the Hill-Burton program requires health care facilities (usually hospitals and clinics) that received certain Federal funding to provide a specific amount of health care to needy persons free or at reduced cost. Eligibility is determined by income and family size, using the Federal poverty guidelines.
Through its Bureau of Primary Health Care (BPHC), HRSA funds community and migrant health care centers that treat people with limited access to medical services. Depending on the needs of the community, CAM care may be integrated with conventional care at these centers.
Through the national "Insure Kids Now!" initiative, each state has a program to make health insurance available to infants, children, and teens in working families.