The Responsibility of Getting LMNs Right
Every few months, a new “solution” emerges in the benefits space. Some promise to simplify substantiation. Others claim to make “everything eligible.” And lately, I’ve seen an uptick in companies offering to fast-track Letters of Medical Necessity (LMNs) for items that may otherwise be ineligible under IRS rules.
On the surface, these services appear to benefit participants. Who wouldn’t want a streamlined process that makes more expenses reimbursable? But here’s the fundamental issue: convenience cannot come at the expense of compliance.
The IRS most recently released an alert on this issue, reminding the industry that expenses related to general nutrition, wellness, and fitness are not automatically medical care which qualifies for tax advantage treatment. To qualify for tax-advantaged treatment, these expenses must be directly tied to a specific diagnosis and treatment plan from a licensed provider. That’s not a gray area, it’s a regulatory requirement.
What an LMN Actually Requires
A legitimate LMN is not simply a permission slip. It’s clinical documentation that must include:
- The patient’s name and demographics
- A specific diagnosis or medical condition
- A recommended treatment protocol
- An explanation of how the treatment will address that condition
- The provider’s information, NPI, and signature
If an LMN is missing key elements or appears generic, boilerplate, or mass-produced, the employer sponsoring the plan faces regulatory exposure. IRS auditors are increasingly targeting “rubber stamp” LMNs that lack a genuine patient-provider relationship.
The Sequence Problem
One of the most significant operational issues I observe is the backwards approach: participants identify a desired product (an exercise bike, retinol cream, supplements), then seek an LMN to justify the purchase using a tax-advantaged account.
This fundamentally misrepresents how the system was designed to function. Tax-advantaged dollars are not intended to subsidize general wellness purchases. They exist to support treatments prescribed by physicians who have evaluated patients and determined that specific items are medically necessary.
This distinction is critical. It’s the difference between requiring a product to treat a diagnosed condition and simply wanting tax relief for purchasing something that might improve general health.
Our Responsibility to the Plan
At Ameriflex, our primary obligation is to the plan. This means protecting both employers and employees by ensuring expenses meet proper substantiation standards. We do not automatically deny LMNs from telehealth or third-party vendors, but we review each submission individually to verify alignment with IRS guidance and plan requirements.
This approach isn’t about creating obstacles. It’s about fiduciary stewardship. Employers rely on us to help them operate compliant benefit plans. Participants depend on us to ensure that qualified reimbursements are processed fairly and consistently. Regulators expect us to maintain reasonable substantiation standards for all claims.
The Stakes Are Real
LMNs represent a legitimate pain point for participants. The paperwork burden is real, and we understand the frustration. However, circumventing proper procedures isn’t a genuine solution, it merely transfers risk from participants to employers, and ultimately back to potential IRS scrutiny.
The reality is that tax-advantaged accounts function effectively only when we respect their intended purpose. They are not general wellness funds or lifestyle enhancement accounts. They are medical benefits with specific regulatory parameters. As administrators and as an industry, maintaining that distinction is both our legal obligation and our professional responsibility.
When we compromise on these standards, when we prioritize convenience over regulatory integrity, we undermine the foundation of these beneficial programs. This foundation is what makes them possible.