Genetic testing kits are all the rage these days – and recent tax news may make it even more affordable. Taxpayers may now get a tax break for some testing, piquing interest for some taxpayers. Unfortunately, the increased popularity also makes genetic testing kits ripe for scammers.
The U.S. Department of Health and Human Services (DHHS) Office of Inspector General recently issued an alert about a fraud scheme involving genetic testing. The scheme, which tends to target seniors, offers Medicare beneficiaries “free” screenings or cheek swabs for genetic testing in return for Medicare information. Those who agree to the testing or verify Medicare information may be given a cheek swab, an in-person screening or receive a testing kit in the mail, even if it is not ordered by a physician or considered medically necessary.
As part of the scam, even though the testing isn’t ordered by a physician or considered medically necessary, Medicare is billed for the test. If Medicare denies the claim, the testing or ordering company still wants to get paid. As a result, the Medicare beneficiary – that might be you – could be on the hook for the entire cost of the test. In some cases, that could be thousands of dollars.
(You can read more about the scheme here.)
The best way to protect yourself? Your doctor – not a company or a salesperson – should order genetic testing. A good rule of thumb? If anyone other than your physician’s office requests your Medicare information, do not provide it.
If the term “medically necessary” sounds familiar, it’s similar to the standard that the Internal Revenue Service (IRS) uses for medical expenses deductions and inclusion under a Flexible Spending Account (FSA) or Health Savings Account (HSA). For federal income tax purposes, medical expenses which qualify as deductible include as a treatment for a diagnosed disease or condition and must be specifically ordered by your doctor (in other words, prescribed). Medical expenses include visits for routine medical, dental and vision care, as well as specialist care, and also include treatments, including medications and follow-up visits. Medical expenses may also include associated out-of-pocket costs, like mileage (for mileage costs in 2019, click here). Medical expenses which would qualify for the medical and dental expenses deduction are typically the same as those which qualify for FSA and HSA purposes.
(You can read more about medical expenses here. For more on HSAs and preventative care, click here.)
That standard means that genetic and ancestry tests to find out if you’re related to the Queen – or if you actually come from Italy – are not tax-deductible. However, a recent Private Letter Ruling (PLR) issued by the IRS suggests that you may deduct the cost of genetic testing that relates directly to health services like diagnostics and genetic markers for cancer.
(You can read the PLR, which downloads as a PDF, here. A quick reminder: PLRs are issued to an individual taxpayer in response to a particular set of facts. You can’t rely on a PLR as precedent, but it does give you a good sense of the IRS’ position on a particular matter.)
This year, the company, 23andMe, which is regulated by the Federal Drug Administration (FDA), got approval to offer risk analysis for nearly a dozen genetically linked diseases. One of their testing plans, the Health + Ancestry plan, now includes testing for genetic health risks and carrier status. If you opt for a combined plan like that one – with medical and non-medical markers – only the cost of genetic testing may be considered a qualified medical expense. You’ll have to allocate the price of the medical care portion as a portion fo the total paid for the kit. 23andMe has embraced the latest PLR, and has even posted a calculator on its website to help taxpayers determine the portion that might be appropriate for FSA and HSA coverage.
A quick word of caution: Not all companies are created equal. While some companies may offer genetic testing kits for legitimate purposes, it’s clear from the DHHS alert that scammers are trying to take advantage. Do your homework and use caution before providing your information. If you have questions about whether a specific test might qualify for HSA, FSA, federal income tax or Medicare purposes, check with your tax or benefits professional.