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Health Savings Accounts: What Medical Expenses Are Covered?

In 2011, over-the-counter medications without a prescription (like cold medicine) were excluded from the list of qualified medical expenses. But bandages, contact lens solution, and first aid supplies are still covered.

The list of HSA-qualified medical expenses is long and complex. A full list can be obtained from the IRS Publication 502 for 2011 tax preparation.

2011-2012 Changes

One major change for 2011: Over-the-counter medications without a prescription are NOT considered qualified medical expenses. This includes cold medicine, aspirin, and similar over-the-counter remedies.

Also in 2011, the penalty for using HSA funds for non-qualified expenses increased to 20% (up from 10%). Money used for non-qualified expenses should be reported as income and is subject to your normal income tax rates.

Qualified Medical Expenses

A partial list of qualified expenses you may not know about.

• Prescription medications
• Insulin (with or without a prescription)
• Bandages and first aid supplies
• Contact lenses and supplies
• Dentures
• Orthodontia
• Capital expenses for installing medical equipment or making improvements to your home (ramps, widening doorways, rails, support bars, lifts, etc.)
• Health insurance premiums for certain plans
  • COBRA coverage
  • A health plan during the time in which the individual is receiving state or federal unemployment.
  • Medicare Part A, B, D, or Medicare Advantage
  • Qualified long-term care
• Hearing- and vision-related expenses (hearing aids, prescription glasses, laser eye surgery, Braille books, guide dogs)

Non-Qualified Medical Expenses

A short list of non-qualified medical expenses that may come as a surprise.

• Over-the-counter medications without a prescription (aspirin, cold medicine, etc.)
• Funeral or burial expenses
• Health club dues
• Maternity clothes
• Most cosmetic surgery, including hair transplants and teeth whitening
• Nutritional supplements

Interested in starting a Health Savings Account for your employees? Want help communicating these changes to your employees? Contact Group Benefits, Ltd. at (800) 640-7382 to learn more.