Can You Use FSA for Liposuction?

A Flexible Spending Account (FSA) is an employer-sponsored benefit allowing you to set aside pre-tax dollars for out-of-pocket healthcare costs. These accounts help you budget for medical expenses not covered by your health insurance, which reduces your taxable income. The use of FSA funds is governed by federal regulations, which have specific rules for procedures like liposuction.

The General Rule for FSA Eligibility

The Internal Revenue Service (IRS) defines which costs are permissible for FSA reimbursement. Funds can only be used for “qualified medical expenses,” which are costs for the diagnosis, cure, mitigation, treatment, or prevention of disease. This definition is detailed in IRS Publication 502.

Procedures performed for purely cosmetic purposes are explicitly excluded from being qualified medical expenses. This means any surgery to improve appearance that does not also treat an illness or promote proper body function is not eligible. Therefore, you cannot use your FSA to pay for liposuction when it is performed only for cosmetic reasons.

The Medical Necessity Exception

An exception to the rule against cosmetic procedures exists. Liposuction can become an FSA-qualified medical expense if it is deemed medically necessary to treat a specific disease, deformity, or physical abnormality. For the expense to qualify, a physician must prescribe the procedure to address an underlying health condition, shifting its purpose from cosmetic enhancement to a required medical treatment.

For example, liposuction is a recognized treatment for conditions where abnormal fat accumulation causes pain or mobility issues. One such condition is lipedema, a chronic disease involving a symmetric buildup of adipose tissue. Another is lymphedema, where liposuction may be used to remove fibrotic fatty tissue caused by a compromised lymphatic system. In these cases, the procedure’s goal is to alleviate symptoms and treat the disease.

Required Documentation for Medical Necessity

To use FSA funds for a medically necessary procedure, you must provide documentation proving the expense qualifies. A Letter of Medical Necessity (LMN) from a licensed physician is required. This letter serves as evidence for your FSA administrator that the liposuction is not cosmetic. Without a detailed LMN, your claim for reimbursement will be denied.

The LMN must substantiate the claim by stating the patient’s specific medical diagnosis, such as lipedema. It must also explain how liposuction will treat or mitigate this medical issue. The letter needs to include a direct statement from the physician confirming the procedure is medically necessary and not for cosmetic purposes.

Your FSA administrator relies on the LMN to verify that the expense complies with IRS regulations. It is your responsibility to obtain this letter from your healthcare provider before you incur the expense or submit a claim. Keeping a copy of the LMN with your tax records is also recommended, as you are ultimately accountable to the IRS for proving the eligibility of your expenses.

Process for FSA Reimbursement

After securing a Letter of Medical Necessity, you can access your FSA funds in two ways. The first method is to pay for the liposuction out-of-pocket and then submit a claim to your FSA administrator for reimbursement. This claim must be accompanied by an itemized receipt from the medical provider and a copy of the LMN. The second method, if your plan offers it, is to use an FSA debit card to pay directly at the point of service.

If you use an FSA debit card to pay for the liposuction, the transaction may be approved initially. However, you will be required to substantiate the charge later by providing the same documentation: the itemized receipt and the LMN. FSA administrators regularly audit debit card transactions, especially large ones, to ensure compliance. Failure to provide the required proof upon request can result in the charge being deemed ineligible, requiring you to repay the amount to the FSA.