Deduction expanded for medical care arrangements

Tax Hot Topics newsletter The IRS issued proposed regulations (REG-109755-19) expanding the deductibility of payments for certain medical care arrangements.

The guidance is issued in response to Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare to Put Patients First,” issued by President Donald Trump on June 24, 2019. It provides that amounts paid for the following are considered medical care or insurance, and are therefore deductible as medical expenses under Section 213:

  • Membership in health care sharing ministries
  • Health maintenance organizations (HMOs)
  • Certain government-sponsored health care programs, including Medicare, Medicaid, TRICARE, and CHIP

The proposed regulations also introduce direct primary care (DPC) arrangements, which are defined as contracts between an individual and one or more primary care physicians under which the physicians agree to provide medical care. Expenditures for DPC arrangements would be considered amounts paid for medical care and deductible as medical expenses under Section 213. In addition, health reimbursement arrangements (HRAs) would be permitted to reimburse DPC arrangement fees and membership fees for health care sharing ministries. However, individuals covered by a DPC arrangement generally would not be eligible for a health savings account (HSA) except in limited circumstances.

The regulations are proposed to be applicable for taxable years that begin on or after the date they are finalized.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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