Genetic Testing May Include Medical Expenses

The IRS has ruled, in Private Letter Ruling 201933005, that portions of the cost of a genetic testing service may be considered medical expenses and may, therefore, be reimbursed by a health care Flexible Spending Account ("FSA").

An employee purchased a private company's DNA ancestry and health testing services and submitted his DNA sample. His DNA sample was then tested and the company provided the results to the employee. According to the company, the goal of the services includes giving individuals a "deeper understanding of their health risks" and to encourage individuals to provide the information to a health care provider for additional testing, diagnosis, or treatment.

The employee then submitted the cost of the DNA testing to his health care FSA for reimbursement, claiming the service was "medical care."

Under the Internal Revenue Code, "medical care" includes goods or services for the "diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body."

Previously, in Revenue Ruling 54-457, the IRS had ruled that when a university charged a student a lump-sum fee that included medical care as well as other expenses, "the portion of the charge that is allocable to medical care is considered a proper medical expense... if there is a breakdown showing the amount of the fee that is allocable to medical care." Therefore, if non-medical items or services are provided, the price paid must be allocated between goods and services that qualify as medical care and those that are not medical care.

Furthermore, in Revenue Ruling 2007-72, the IRS stated that the term "diagnosis" encompasses the determination that a disease may or may not be present, and includes testing of bodily functions that are unrelated to disease. The revenue ruling concludes that amounts paid by individuals for diagnostic and similar procedures and devices, such as a full-body scan performed without a physician's recommendation, qualify as medical care even if the individual is not experiencing symptoms of an illness or disease.

In this case, the IRS concluded that the DNA testing included some items that are considered FSA-reimbursable medical care, and some that are not medical care.

As to determining the cost of the health services, the IRS said the employee may use any reasonable method to value and allocate the cost of the DNA health services between medical care services (such as health assessment) and non-medical services (such as providing certain information with regards to ancestry).