The IRS decided that 23andMe tests aren’t just for fun—they’re medical care

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Image: Reuters/George Frey
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The latest item eligible for your flexible or health spending account? A 23andMe genetic testing kit.

On Monday (July 22) the Wall Street Journal reported that in May, the United States Internal Revenue Service decided the health portion of 23andMe’s $199 health and ancestry DNA analysis counts as medical care. Although the company doesn’t sell its health-risk test alone—it comes in a bundle with ancestry testing—customers who purchase the kit in 2019 can use their flexible or health spending accounts to cover up to $117.74 of the total cost.

The IRS decision reflects the many identities of the company: It’s part science, part entertainment, and increasingly, part health care. Of the dozens of genetic testing companies operating in the US, the Food and Drug Administration has given only 23andMe approval to inform customers directly (rather than through a health care provider) whether or not they have a handful of mutations that put them at a higher risk of developing 11 conditions, including breast cancer and Alzheimer’s disease. This latest decision bolsters the idea that direct-to-consumer genetic tests aren’t just for fun—they’re yet another player in the US health care arena.

The ruling came out of one individual’s claim that their 23andMe kit should be an eligible expense for their flexible spending account. The case was brought to the IRS in October 2018: Based on the IRS’ broad definition of “medical care,” the taxpayer argued, 23andMe tests should fall into the bucket. According to documents obtained by the WSJ, “medical care” can mean anything that helps with the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” When the IRS ruled the taxpayer could use their FSA to pay for some of their 23andMe kit, it set a precedent for anyone who made the same purchase in 2019.

The agency’s ruling excludes 23andMe’s ancestry testing, which doesn’t have medical applications, while including the medical genetic tests and carrier status tests that could conceivably be prescribed by a health care provider. But the IRS’ ruling also includes the company’s wellness genetic tests, which look for factors influencing weight and lactose intolerance, and physical trait tests, which look for genetic markers for eye color and affinity for salty foods—neither of which would be prescribed by a doctor.

Some of these wellness traits have significantly less science behind them, although arguably, the stakes are much lower than they are for traits relating to a customers’ health. However, their inclusion means that other companies could vie to make their wellness tests eligible for future FSA benefits, especially because it doesn’t appear that the IRS considered 23andMe’s FDA approval a prerequisite for its decision, says James Hazel, a lawyer and biologist at Vanderbilt University Medical Center. “The IRS has left the door open a little bit for some of those wellness and other kinds of tests,” Hazel says.

The medical community doesn’t view 23andMe’s kit as a substitute for clinical tests. For example, although the company can identify three different mutations on the BRCA1/2 genes that may put a woman at a high risk of developing breast cancer, there are thousands of mutations on these genes that could have similar effects. Even if a customer finds out they’re at a high risk of breast cancer through 23andMe, they’d need to go through their own health care provider to confirm the result before going through any kind of treatment.

Conversely, a customer whose 23andMe results show that they don’t carry any of the higher-risk mutations may be given a false sense of security. Having no risks turn up in the company’s analysis is not the same as having no risks altogether.

There are other genetic testing companies in the US that can screen for certain disease risk factors. However, all of these companies have clinicians or genetic counselors that help customers decide if the test is right for them, and go over their results with them. These companies are already cleared as medical care by the IRS, meaning they could be paid for with a customer’s FSA, but they have an added layer of oversight from a health care provider.

This decision could incentivize customers to buy genetic testing kits—and therefore put their genetic data out into the world, which can come with some privacy concerns. As the WSJ notes, because flexible spending accounts aren’t carried over, the kits are likely to be a splurge purchase at the end of the year. Already, they’re popular gifts for family members to give each other around the holidays.