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Financial Fitness: Health Savings Accounts – What Constitutes a “Qualified Medical Expense”

Health Savings Accounts are a smart way to save money for health-related expenses,and the money you save is also tax-deferred. They are a great option for anyone with a high-deductible health insurance plan and no other primary medical coverage. The money you save, if unused during the year, rolls over and remains available for use any time medical expenses are incurred. The ability to spend money from the account on qualified medical expenses as needed is another great benefit of these accounts; the money that is withdrawn for that purpose is also not taxable. It is important to use the account responsibly, as funds from an HSA that are used for "other” expenses not only become taxable, but will also incur a hefty 20% penalty. So what is considered a Qualified Medical Expense, and how can you be sure that you are within IRS guidelines when using money from your HSA?
When in doubt, the easiest way to find information about your HSA is to read the publication (updated annually) from the IRS that deals specifically with qualified medical expenses. But in general, most medical services and procedures, as well as prescriptions and other related items are considered qualified. Some qualified medical expenses you may not have considered as eligible include:
  • Acupuncture treatments·
  • Alcoholism treatment programs, including transportation to and from AA meetings if your doctor has advised that such meetings are essential to treat a disease pursuant to excessive drinking.
  • Chiropractic care
  • Contact lenses, eyeglasses and eye exams, as well as eye surgery such as cataract surgery or laser eye surgery to correct vision problems
  • Hearing aids – including batteries and maintenance.
  • Oxygen
  • Weight-loss programs – but only if your doctor has advised you to lose weight due to a specific medical condition such as hypertension or diabetes. Check the IRS publication carefully here as there are restrictions and limits in this category.
  • Lead-Based Paint Removal – if your child has had lead poisoning because of lead-based paint in your home, you can pay for the cost of removing the lead-based paint directly from your HSA.
  • Prescription drugs, insulin and over-the-counter medications that were prescribed by a physician – this rule has recently changed. Prior to 2011, over-the-counter medications were eligible as a qualified medical expense, but this is no longer the case (with the exception of insulin) unless the medication was prescribed.
Since money from a Health Savings Account can be used as needed by the account holder, it is important to keep good records of your expenditures throughout the year. This documentation will assist with filling out the needed tax forms related to the account, as well as proof that each expenditure was medically necessary and on the list of qualified medical expenses. There are over 80 different categories of expenses considered qualified, from guide dog expenses to television and telephones equipped with technology for the hard of hearing. When in doubt, always double-check the IRS publication before using your HSA funds to pay for a specific expense!And make sure you are looking at current information, as the list does change from year to year.
Don’t have a Health Savings Account? They are quickly becoming a very wise choice for anyone with a high-deductible health insurance plan. Contact your local banker to discover whether opening an HSA is right for you.
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