IRS Clarifies When Wearable Health Devices Qualify for FSA, HRA, and HSA Reimbursement

Takeaways

• Smartwatches, fitness trackers, smart rings, and similar devices are not automatically eligible simply because they collect health-related information.
• Medical recommendations, diagnoses, risk factors, and actual use of the device can help determine whether an expense qualifies.
• Employers and plan administrators should review reimbursement requests individually, obtain adequate substantiation, and avoid automatically approving devices with both wellness and medical uses.

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The IRS recently updated its guidance on when certain nutrition, wellness, and general health expenses may qualify as medical expenses that can be paid or reimbursed through tax-advantaged accounts, such as flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs).

The new guidance focuses on wearable devices, such as smartwatches, rings, patches, sensors, bands, and similar products that track health-related information. As these devices have become more common, employers and administrators have increasingly faced questions about whether their cost can be reimbursed through these accounts.

The IRS confirmed that a device is not automatically reimbursable simply because it collects health-related data. For example, a wearable device that tracks general wellness, fitness, sleep, blood pressure, glucose levels, or similar information may still be a personal expense if it is used primarily for general health or lifestyle purposes.

Whether the cost qualifies instead depends on the facts and circumstances. A wearable device may be reimbursable if it is purchased and used primarily to help diagnose, treat, mitigate, cure, or prevent a specific disease. Relevant considerations may include whether a medical provider recommended the device, whether the individual has symptoms, a diagnosis, abnormal test results, or risk factors, and how the information collected by the device is actually used in connection with the medical condition.

The IRS also emphasized that a general desire to monitor or improve health is not enough. Accessories, add-ons, and software subscriptions connected to a wearable device generally qualify only if they are also purchased primarily for a valid medical purpose.

For employers, plan sponsors, and administrators, the update is a useful reminder that claims involving wearable devices should be reviewed carefully. Because many of these products have both general wellness and medical uses, administrators should be prepared to evaluate the specific circumstances and obtain adequate substantiation before approving reimbursement. This type of individualized review also means that many wearable devices are unlikely to be appropriate for automatic approval through an inventory information approval system, or IIAS.

Please let us know if you would like assistance reviewing your plan’s reimbursement procedures, substantiation requirements, or participant communications in light of this updated IRS guidance.