Why It Matters:
  • A health savings account (HSA) can offer great tax benefits, but it can’t be used to pay certain expenses.
  • Knowing what can and can’t be paid with HSA money can help clients budget for medical expenses.

You might know that a growing number of Americans are becoming eligible for health savings accounts, which can allow them to set aside pretax money for qualifying medical expenses.

But it can be tough keeping track of exactly which expenses an HSA can or can’t cover.

In general, an HSA can pay for an expense if it involves diagnosing, curing, treating, or preventing a disease or something that affects a body part or function.

An HSA can’t be used to cover most over-the-counter drugs, unless the drugs are prescribed by a doctor. Yet there’s an exception for home pregnancy tests and contact lens solution, even though you can buy them without a prescription.

A program to help quit smoking? That’s covered.

Nicotine gum or patches that are sold over the counter? Not covered.

Here’s a sample of what you CAN pay for with HSA money:
  • Transportation related to medical care for donating or receiving an organ transplant
  • Food and veterinary care for a guide dog
  • Hearing aid
  • Prescription eyeglasses
  • Laser eye surgery
  • Premiums for Medicare Parts B and D (and Medicare Part A, but only if you voluntarily enrolled in Part A because you weren’t covered under Social Security or didn’t pay Medicare tax)
  • Long term care insurance premiums up to a certain amount (see IRS Publication 502 for more information)
Here’s a sample of what you CAN’T pay for with HSA money:
  • Life insurance policy premiums
  • Maternity clothes
  • Unnecessary cosmetic surgery
  • Teeth whitening

People qualify to have HSAs if they meet certain conditions − the main ones being that they have a high-deductible health plan and no other health coverage. For 2017, a high-deductible plan means one with an annual deductible of at least $1,300 for individuals ($2,600 for family coverage) that also puts the individual on the hook for paying up to $6,550 in out-of-pocket expenses in a year ($13,100 for family coverage).

Individuals can contribute up to $3,400 to an HSA for 2017 (plus a $1,000 catch-up for those 55 and over), or $6,750 for those with family coverage.

Things to Consider:
  • IRS Publication 502 has a full list and explanations of what qualifies as a medical or dental expense that can be covered by an HSA.
  • IRS Publication 969 has more on HSAs and how they work.