Monday, October 1, 2007

Should Sex-Change Surgery be Tax Deductible?

Rhiannon O’Donnabhain, a 64 year old former construction engineer, is suing the IRS for denying a tax refund for sex-change surgery. The IRS concluded that the surgery was “cosmetic.” O’Donnabhain claims that it was “medically necessary.”

How should questions like this be decided?

Today’s Washington Post story shows that the case illustrates a fundamental flaw in how we in the U.S. think about health care.

The IRS criteria for deductibility make the cost of any “disease…defect or illness” tax deductible. This leads to the absurd conclusion that even if a treatment cost one billion dollars it would automatically be covered by a deduction, as long as it was for a disease, defect or illness! As a result, in order to deny the deduction the IRS has to demean O’Donnabhain by calling her treatment “cosmetic.” By any reasonable definition of “cosmetic” it isn’t.

But the medical expert testifying for O’Donnabhain is equally confused about fair decision making. After correctly noting that “it’s absolutely clear that transgender identity is a condition discussed in diagnostic manuals” the expert asked “when did the IRS suddenly become physicians?” The question implies that physicians are entitled to determine tax policy (or insurance coverage). They aren’t.

No society can, will or should pay for every effective treatment for every disease, defect or illness. As important as health care is it is not the only important societal priority. Deciding what insurance should cover and what should count as a tax deductible expense is ultimately a political and moral decision about what a society feels it owes to its members.

In “Setting Limits Fairly: Learning to Share Resources for Health” Norman Daniels and I discuss how to decide questions about insurance coverage and tax deductibility. We argue that fair social process requires deliberation about individual needs (O’Donnabhain’s condition), medical facts (what we know about gender identity disorder and its treatment), available resources, and alternative resource needs in health care and other sectors.

Better understanding of fair limit setting and more honesty about the reality of limits would allow the IRS to deny deductibility without demeaning O’Donnabhain’s treatment as “cosmetic.” Likewise, physicians would understand that their expertise entitles them to make diagnoses but not to unilaterally decide what insurers or public programs should pay for.

My own view is that treatment of gender identity disorder should be eligible for insurance coverage and tax deductibility. But the court will do best by focusing on the need for a fair decision making process rather than taking on itself the responsibility for saying yes or no.


State of UNION - Breaker said...

When I first heard that "any" insurance, especially MA healthcare would even think about covering a sex change operation, I was appalled. And, don't get me wrong...I have nothing against someone who choses to make this change. I don't think society should pay for this elective type of surgery.

Anonymous said...

It is listed in the Diagnostic and Statistical Manual of Mental Disorders (DSM), so as long as it is continued to be listed in the DSM it should be covered by insurance as it classified as a disorder

Jim Sabin said...

Dear Ted and Anonymous -

Ted - I apologize that somehow your comment didn't come to my attention in April.

Ted and Anonymous - your two comments bracket this question nicely! Ted interprets sex change surgery on the model of "cosmetic surgery," which is defined as being "for appearance" and not "for medical purposes." Anonymous interprets sex change surgery on the model of illness and its treatment.

The "illness" - a dissociation between the gender of the physical body and what is experienced in the psyche - is indeed an unusual situation. It isn't surprising that opinion and understanding would diverage as they do in your two comments.

Anonymous - I disagree with you in one particular way. I see being in the DSM, which is essentially our official listing of illnesses in the realm of psychiatry, as making a condition eligible for coverage, not as answering the question about whether it should actually be covered. This distinction was made most clearly in Governor Kitzhaber's approach to the Oregon Health Plan, in which the allocation from the Oregon legislature determined just how far down the prioritized list of eligibile conditions coverage would go.