Health Savings Accounts (HSAs) are used in conjunction with High Deductible Health Plans (HDHPs). These types of plans work best for individuals and families that are relatively healthy and spend very little from their HSA.

But if you do need to use yours to pay for Qualified Medical Expenses, sometimes it can be confusing to determine what is covered and what is not.

• Is Yoga covered? Only if your doctor prescribes the yoga for treatment of a specific medical condition (perhaps hypertension or arthritis, for example).
• What about sunglasses? Again, only for prescription sunglasses.

There is a common theme. If your doctor (or other healthcare professional) prescribes you something for a specific medical condition, then that item is covered. A massage or facial? Only if it’s prescribed (perhaps for back pain or acne, respectively).

However, if your doctor simply tells you to get more exercise to improve your general health, then Yoga is NOT covered.

The same rules apply to gym memberships and dance lessons. Prescriptions only.

Which healthcare professionals are covered?

Fees charged for a doctor’s visit are obviously covered, but what about other healthcare professionals?

Fees charged by dentists and dental hygienists for teeth cleaning, fluoride treatment, fillings, extractions, X-rays, and dentures are all covered. Any dental ailment is covered.

Braces are covered, but other “cosmetic” dentistry procedures, such as teeth whitening, are NOT covered.

Likewise, eye exams and the cost of prescription glasses and contact lenses are covered. All supplies for those contact lenses, such as saline, are also covered. Surgery to correct poor vision is also covered. However, if you have colored contacts for cosmetic reasons only, those are not covered.

Osteopaths and Christian Science practitioners are covered for medical care. Likewise, chiropractors, and practitioners of acupuncture.

Psychiatrists and psychiatric care are covered.

Nursing services are covered, even if those tasks are not performed by a nurse. The covered tasks must involve the care of a patient: changing a dressing, giving medication, grooming or bathing. (Household chores done by the same person are not covered.)

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Drugstore items

Over-the-counter medication, such as aspirin, is not covered. However, if your doctor prescribes you an over-the-counter medication, that is covered. Insulin is always covered.

Likewise, any nutritional supplement, such as vitamins, are not covered. Exceptions apply to supplements recommended by a medical practitioner for the treatment of a specific medical condition. For example, calcium and vitamin D taken for the treatment of osteoporosis.

Medical supplies, such as bandages, are covered. Along with supplies for contact lenses, mentioned above. Personal care items, such as toothbrushes, are not covered.

Breast pumps and supplies are also covered. As are pregnancy tests.

Medical devices

Medical devices used to diagnose or treat a medical condition are also covered. For example, a blood sugar test kid for a diabetic. Or oxygen for breathing problems.

Disability support

Most items and modifications to support disability are covered. Crutches and wheelchairs are covered. Likewise, hearing aids and artificial limbs.

The cost difference between braille books and magazines and the regular printed version can be expensed. Also, if you require special equipment to accommodate the use of a telephone or television due to a disability.

If you need a guide dog or other service animal due to a visual or hearing impairment, or a disability, then costs are covered. That includes initial purchase, training, veterinary care, food, and grooming.

You may need to make modifications to your home or car. This may include widening doorways for a wheelchair, adding handrails, or adding ramps. In a car, you may need to install special hand controls or a wheelchair lift.

Installing these improvements may increase the value of your home. Only the portion of the cost that does not add to the value of your home may be expensed.

For improvements to a car, only the expense above the cost of a regular car is covered.

Special education for those with learning impairments is covered. Also, special homes for the intellectually or developmentally disabled. If required, tuition, meals, and lodging are all covered.

Care for the disabled, can also be expensed from your HSA. However, there is also the option of taking the Dependent Care Expense credit on your taxes. You can do one or the other, but not both.

Qualified Long-Term Care is covered, including maintenance and personal care for a chronically ill individual that can no longer care for themselves or require supervision. (Note, FSAs don’t cover long-term care expenses.)

Cosmetic surgery

Most cosmetic surgery is not covered, but there are exceptions for procedures to correct a deformity, either congenital or as a result of disease or injury from an accident. Breast reconstruction surgery following a mastectomy is covered.

Wigs are covered if recommended by a physician.

Mental health

All psychiatric care, including psychoanalysis, is covered.

Inpatient treatment for alcoholism and drug addiction is covered. Also, meals and lodging during your stay. If it is medically recommended that you attend Alcoholics Anonymous, then transportation costs are also covered.

Stop-smoking programs are covered. But over-the-counter items, like nicotine gum, are not covered.

Weight-loss programs are covered but only if prescribed by a physician for a specific health concern (eg, obesity, hypertension, heart disease). Again, not for your general health. Diet food is not covered, as you need to eat whether on a diet or not.

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Reproduction

Prescriptions or procedures related to reproduction are also covered. This includes prescribed birth control pills, abortion, and sterilization, including vasectomy.

Pregnancy tests are covered.

Fertility treatments that involve either in vitro fertilization or surgery are covered.

Meals, lodging and transportation

If you must travel for medical care, either for yourself, a spouse, or dependent family member, then transportation and lodging expenses may qualify. Limits apply.

If you are in a hospital or medical center to get medical care, then meals purchased there also qualify.

If you attend a medical conference on a chronic illness suffered by yourself, spouse, or dependent, then the cost of the conference is covered. (Meals and lodging, however, are not.)

The IRS publishes the complete list here

HSAs, MSAs, FSAs, and HRAs

A Qualified Medical Expense is the same regardless of how it is being used. Instead of an HSA, you may have an Archer Medical Savings Account (MSA), a Flexible Spending Account (FSA), or a Health Reimbursement Arrangement (HRA) with your employer. It’s (more or less) the same list for all of them.

You may have none of the accounts above, but a lot of medical expenses this year. If you are itemizing and your Qualified Medical Expenses are greater than 7.5% of your Adjusted Gross Income (AGI) you can deduct Qualified Medical Expenses above that 7.5% amount.

For a given medical expense, you can either expense if from one of the health-related savings accounts listed above, OR deduct it, but not both. No double-dipping allowed. Also, if you happen to have more than one type of account (unlikely) you can’t double-dip either.

Insurance premiums

Insurance premiums (HMO, PPO, etc.) that you pay for, are listed as a Qualified Medical Expense, which you can deduct from your taxes if you choose to go that route or expense from your HRA. However, HSAs, MSAs, and FSAs won’t cover insurance premiums.

There are exceptions: HSAs will cover COBRA payments. COBRA is the medical insurance you may purchase for up to 18 months after leaving a job where you had an employer-sponsored health plan.

HSAs will also cover health coverage while receiving unemployment compensation. HSAs cover Medicare premiums if you are age 65 and above. Long-term care insurance—with some limitations—is also covered.

Life insurance premiums, or the medical part of your auto insurance, are not covered at all.

Keep good records

There is no deadline for reimbursing medical expenses from your HSA. You could wait…decades.

The only caveat is you need to keep excellent records. Obviously, you’ll need an electronic version of your medical expense receipts. (Sometimes you can simply snap a cell phone pic of your paper receipt.)

If you have medical receipts this year that you are planning to set aside, then you also need to keep your tax records for this year.

• Perhaps ten years from now (2030?) you reimburse this year’s (2020) medical expenses from your HSA
• The IRS may question whether you reimbursed these medical expenses from another source—no double-dipping. They may wish to see your 2020 tax records to confirm that you didn’t use those medical expenses as an itemized medical deduction.

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HSA contributions and HDHP deductibles

For 2020 you may contribute up to $3550 to an HSA as an individual, or up to $7,100 with family coverage. Unfortunately, you can only contribute to your HSA while you are covered by a high-deductible health plan (HDHP).

For 2020, the IRS defines an HDHP as a plan with a deductible of no less than $1400 for individual coverage, or $2800 for family coverage. Annual out-of-pocket expenses, including the deductible and co-payments, can’t exceed either $6900 or $13,800 respectively.

Your individual plan may have a higher deductible, as long as the limits above are not violated.

Here are the HDHP numbers for 2020

HSA as an investment vehicle

Why would you choose to wait for years or decades before reimbursing medical expenses? (If at all.)

HSAs can be used for their original intent, as a tax-free way of paying for medical expenses, or as an investment vehicle. Depending on where your HSA is located, you may have investment choices, such as stock or bond funds.

HSAs have a triple tax advantage. The money you put in is not taxed and can grow tax-free, much like your typical IRA. Money that you take out—if used for a Qualified Medical Expense—is also not taxed. One, two, three.

If you are relatively healthy and have minimal out-of-pocket health expenses, then an HSA can be a powerful savings vehicle.

If your employer makes contributions to your HSA, you get free money.

On the downside, you are most likely stuck with your employer’s sponsored HSA, which may or may not have good investment choices, and may or may not have reasonable fees.

In some cases, you may make more by simply placing your invested savings in a regular taxable brokerage account.

If you can move your HSA, then definitely shop around before keeping the default plan presented to you.

You may be healthy now, but as you age you will most likely incur more health expenses. If allowed to grow, years from now your HSA could be a significant financial resource to tap.

Using your HSA until the end

If you are on Medicare, you can no longer contribute to your HSA as you are no longer on a high-deductible health plan (HDHP). You can, however, make withdrawals from your HSA for as long as it lasts.

If you stay healthy, after age 65, you can treat your HSA like a regular IRA and use the money for non-medical expenses. But in this case, you will have to pay taxes just as you do for the distributions from a traditional IRA.

As always, any money withdrawn for Qualified Medical Expenses—including Medicare premiums—is tax-free.

If you pass away before emptying it, and your spouse inherits, no problem, your HSA becomes their HSA.

There is an issue if a non-spouse inherits. At that point, the HSA stops being an HSA, and the entire thing becomes taxable to the beneficiary in the year you pass away. Ouch.

(Your final medical bills—which could be quite hefty—can reduce the taxable amount if paid by the beneficiary within one year.)

This is a lot different than IRAs and 401Ks that can be passed to non-spouses and still maintain their tax advantages.

Unless you have a healthy spouse, start drawing down your HSA near the end…

Additional Reading

• Rollover Revisited: Why Sticking With a 401K May Be Better. Should you rollover your retirement savings to a new employer’s 401K or a rollover IRA?
• Self-employed? Open Your Own 401K Account. Tax-advantaged retirement savings options are not just for Big Companies
• Roth vs Traditional. Picking where to stash your retirement money for the best tax-advantaged growth

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This information has been provided for educational purposes only and should not be considered financial advice. Any opinions expressed are my own and may not be appropriate in all cases. All efforts have been made to provide accurate information; however, mistakes happen, and laws change; information may not be accurate at the time you read this. Links are included for reference but should not be considered an implied endorsement of these organizations or their products. Please seek out a licensed professional for current advice specific to your situation.