HSA Qualified Medical Expenses Change Gives Savers More Reason to Use HSAs
Individuals can now use their HSAs to cover more health-related expenses than in the past, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law March 27, 2020. The CARES Act repealed the restriction imposed by the Affordable Care Act that required products and medicines be prescribed to be a qualified medical expenses, even if they were available without prescription. Effective January 1, 2020, HSA owners are allowed to use their HSA assets to purchase over-the-counter drugs and medications without a prescription. The CARES Act also specifically listed over-the-counter feminine care products as qualified medical expenses—products that, since the HSA was introduced in 2004, were not allowed as qualified expenses.
While it’s not up to your financial organization to monitor what your clients are spending their HSA money on, having a general knowledge of what expenses may be considered qualified medical expenses for HSA purposes can help you better serve HSA clients. Overall, HSA assets may be used to pay qualified medical expenses incurred by the HSA owner, the HSA owner’s spouse, or a dependent of the HSA owner. Qualified expenses must be incurred after the HSA is established, even if incurred after the HSA owner no longer is eligible to make HSA contributions.
Qualified medical expenses generally qualify for the medical and dental expense tax deduction, including amounts paid for doctor’s fees, prescriptions, and certain dental and vision care (excluding most insurance premiums). Note that medical expenses that are paid for or reimbursed with HSA assets cannot also be claimed as medical or dental expense deductions on federal income tax returns. Though not yet updated for the CARES Act changes, IRS Publication 502, Medical and Dental Expenses, contains a long, but not all-inclusive, list of qualified medical expenses.
Historically, nonprescription over-the-counter medications (other than insulin) did not count as qualified medical expenses for HSAs unless they were prescribed by a physician. With the exception of insulin, an individual could only include in their medical expenses amounts paid for a medicine or drug that was prescribed by a doctor.
Allowing nonprescription medications and feminine care products to be treated as qualified expenses expands the benefits of HSAs and enables individuals to use their HSAs more than they otherwise might have. This is a significant change—one that your HSA owners will likely welcome.
