When employees use an ICHRA or any tax-advantaged health account (like an HSA or FSA), they may hear the term Qualified Medical Expenses, often shortened to QMEs. While it sounds technical, the concept is simple: QMEs are the healthcare costs the IRS allows you to pay for or get reimbursed for using tax-free dollars.
Understanding what counts (and what doesn’t) helps employees make smarter use of their benefits and ensures employers stay compliant.
Here’s a clear breakdown of what Qualified Medical Expenses are, how they work, and how they interact with an Individual Coverage Health Reimbursement Arrangement (ICHRA).
What are Qualified Medical Expenses (QMEs)?
Qualified Medical Expenses (QMEs) are healthcare costs that the IRS considers eligible for payment or reimbursement under tax-advantaged health accounts. These expenses must primarily be used to diagnose, treat, prevent, or mitigate a physical or mental condition.
The official list of eligible expenses lives in IRS Publication 502, which is updated annually.
QMEs generally fall into a few major categories:
- Health insurance premiums (but only for specific accounts — e.g., ICHRAs can reimburse premiums, HSAs cannot)
- Medical, dental, and vision services
- Prescription medications and some over-the-counter drugs
- Medical equipment, supplies, and devices
- Behavioral and mental health services
Because the IRS determines this list, employers cannot determine what counts as an eligible expense.
Common examples of QMEs
Here are some everyday healthcare costs that generally qualify under IRS guidelines:
- Office visits (primary care, specialists)
- Lab tests and X-rays
- Prescription medications
- Insulin and diabetes supplies
- Physical therapy and chiropractic care
- Dental cleanings and procedures
- Vision exams, glasses, and contact lenses
- Certain OTC medications (e.g., cold medicine, pain relievers)
- Menstrual care products
- Medical equipment like wheelchairs, walkers, or CPAP machines
Again, eligibility depends on the IRS — not the employer or the ICHRA provider.
Common expenses that do not qualify
Even though these are healthcare-related, the IRS does not categorize them as QMEs:
- Cosmetic procedures
- General wellness items (e.g., toothpaste, toiletries)
- Gym memberships (unless prescribed for a medical condition)
- Vitamins or supplements (unless specifically prescribed)
- Non-prescription sunglasses
- Childcare or dependent care
- Funeral or maternity clothes
These exclusions are often surprising to employees, so it’s important to set expectations early and encourage employees to validate eligibility before making a purchase.
How QMEs work with an ICHRA
An ICHRA can reimburse individual health insurance premiums and QMEs if the employer chooses an excess allowance ICHRA design, and employee premiums don’t use the full monthly allowance.
Employees must always use their ICHRA allowance toward premiums first. Only the leftover allowance can be used for other QMEs. For example, if an employer provides a $400 contribution on an ICHRA + excess allowance model, and the employee selects a $200 plan, that individual has an additional $200 they can put toward QMEs monthly.
In conclusion
QMEs are healthcare costs defined by the IRS as eligible for tax-free payment or reimbursement. With an ICHRA, employees can use their allowance for premiums first and, when allowed, for other QMEs like dental, vision, medical services, prescriptions, and eligible supplies. Knowing what qualifies helps employees stretch their benefit further and keeps employers compliant.
