Is Cord Blood Banking Tax Deductible?

Cord blood banking takes blood from a newborn's umbilical cord at the time of birth, freezes it and stores it for future use. Cord blood can be used as a transplant to treat conditions such as leukemia that would otherwise need to be treated by a bone marrow transplant. Private cord blood banking companies contract with the parents of a newborn to store the child's cord blood for exclusive future use. The alternative, donating the material to a public bank, is handled free of charge, although the parents will not have exclusive access to it in the future.

Private cord blood banking involves a substantial initial charge along with a first year storage fee followed by ongoing annual fees at a greatly reduced rate. No health insurance provider currently provides direct compensation for cord blood banking, either with the initial fee or for the ongoing storage costs. However, employers that offer Flexible Spending Accounts for health care costs do sometimes compensate for fees related to cord blood banking--and spending through that plan is tax deductible.

One bill introduced to the House of Representatives in 2007, HR 115, would amend the tax code to provide a tax credit of up to $2,000 for parents who elect to use private cord blood banking services. This bill has not been voted on by any legislative body, and has not been scheduled for deliberation. Many states fund their own public cord blood banks, but blood donations to those institutions do not provide any tax advantages.

Cord blood banking should not be undertaken for a tax write-off, as it is only possible to have the expense deducted in relatively rare situations mentioned above. It is primarily advisable for parents who have family members that have needed bone marrow transplants. Anonymous public cord blood banks provide the majority of umbilical blood transplants, so there are free alternatives to private banking.

It is unlikely that the tax code will alter to promote private blood banking in the future. Federal and state governments are actively attempting to build up their own public cord blood storage facilities, and as such, are likely to work to encourage that growth rather than that of private banks. Also, health insurance companies do not cover the procedure because of the relatively minute possibility of it actually being used and the still-limited medical uses for the blood. In the future, however, as the procedure becomes more popular, it may eventually be covered by some insurance companies, and thereby become a tax deductible procedure.