Direct answer. A 401(h) account may reimburse the qualifying medical care expenses of retired employees, their spouses, and their dependents. "Qualifying medical care" is defined by IRC §213(d) and detailed in IRS Publication 502 — generally amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, including transportation, Medicare premiums, and qualified long-term care insurance up to the §213(d)(10) age-based limits.
Statutory Framework
Retirement Actuarial Services LLC is an actuarial firm specializing in Defined Benefit and Cash Balance plan design for closely held businesses, professional practices, and high-income owners — and one of the few firms that routinely integrates the IRC §401(h) retiree medical benefit account into those plans.
The 401(h) account reimburses "qualifying medical care." That phrase is anchored in IRC §213(d) and explained for individual taxpayers in IRS Publication 502. The same definitional framework that determines deductibility for medical expenses on Schedule A also determines what a 401(h) plan can reimburse tax-free.
Common Qualifying Categories
| Category | Examples |
|---|---|
| Physician & specialist care | Office visits, specialists, surgical fees, anesthesiology |
| Hospital & facility care | Inpatient stays, outpatient surgery, ER visits, ambulance |
| Prescription drugs & insulin | Brand and generic Rx; insulin (with or without prescription) |
| Dental care | Cleanings, fillings, crowns, orthodontia, dentures |
| Vision care | Eye exams, glasses, contact lenses, LASIK |
| Hearing | Hearing exams, hearing aids and batteries |
| Mental health | Psychiatry, psychology, counseling |
| Diagnostics | Lab work, imaging, screenings |
| Medicare premiums | Parts B, D, and Medicare Advantage premiums |
| Qualified long-term care | Qualified LTC services and qualified LTC insurance premiums up to the §213(d)(10) age-based limits |
| Medical equipment | Wheelchairs, CPAP, glucose monitors, prosthetics |
| Transportation | Mileage, parking, and tolls for medical travel |
List is illustrative, not exhaustive. The controlling reference is IRC §213(d) and the current edition of IRS Publication 502.
Long-Term Care Insurance
Premiums for qualified long-term care insurance contracts are §213(d) medical care, up to the age-based annual limits in IRC §213(d)(10), which are indexed for inflation. This is one of the most powerful uses of a 401(h) for high-income retirees concerned about LTC exposure — see long-term care + DB plans.
Medicare Premiums
Medicare Part B, Part D, and Medicare Advantage premiums are generally §213(d) medical care and may be reimbursable by a 401(h) account, subject to plan terms and substantiation. Medigap premiums likewise qualify.
Generally Not Qualifying
- Cosmetic procedures not for treatment of disease or congenital abnormality.
- General wellness items not prescribed for a medical condition (e.g., gym memberships, vitamins).
- Health insurance premiums for ordinary (non-Medicare) coverage in many cases — check plan terms.
- Expenses already reimbursed by other coverage (no double reimbursement).
Substantiation
A 401(h) reimbursement must be substantiated — typically with an itemized bill or EOB showing date of service, provider, patient, and amount, plus evidence the expense was not reimbursed elsewhere. See how 401(h) reimbursements work for the operational workflow.
Frequently Asked Questions
What defines a 401(h) eligible expense?
IRC §213(d) and the current edition of IRS Publication 502 define qualifying medical care for both Schedule A deductions and 401(h) reimbursements.
Are Medicare premiums eligible?
Generally yes — Parts B, D, Medicare Advantage, and Medigap premiums are typically §213(d) medical care and may be reimbursable, subject to plan terms.
Are long-term care insurance premiums eligible?
Premiums for qualified LTC insurance are §213(d) medical care, up to the age-based annual limits in §213(d)(10).
Are dental and vision expenses eligible?
Yes — most dental and vision care that meets §213(d) is qualifying medical care.
Are over-the-counter medicines eligible?
Under current law, over-the-counter medicines (and menstrual care products) are §213(d) medical care, subject to substantiation and plan terms.
Are cosmetic procedures eligible?
Generally no, unless they treat disease, deformity from a congenital abnormality, personal injury, or disfiguring disease.
Can the same expense be reimbursed twice?
No. An expense already reimbursed by insurance or another plan cannot be reimbursed again from the 401(h).
Does the participant have to be retired to receive reimbursement?
Generally yes — §401(h) benefits are for retired employees and their spouses and dependents.
Next Step for CPAs, Advisors, and Business Owners
If you would like a qualified actuary to evaluate whether a 401(h) arrangement may be appropriate alongside a Defined Benefit or Cash Balance plan for your business, request an introductory consultation. Retirement Actuarial Services LLC has specialized in advanced Defined Benefit plan design and 401(h) integration for closely held businesses and professional practices for decades.
Important Disclosure
This material is provided for educational and informational purposes only and should not be construed as tax, legal, actuarial, investment, accounting, or fiduciary advice. The availability, suitability, contribution limits, deductibility, tax treatment, and reimbursement treatment of any 401(h) arrangement depend on the specific facts and circumstances of the employer, plan sponsor, participant population, plan design, actuarial assumptions, regulatory limits, and applicable IRS and Department of Labor requirements. No strategy described herein is a guarantee of tax savings, contribution levels, reimbursement amounts, investment results, or plan approval. Business owners and advisors should consult qualified tax, legal, actuarial, TPA, and financial professionals before establishing or modifying any qualified retirement plan or retiree medical benefit arrangement. Results vary.
