Why knowing what is eligible to pay with your HSA can save you a lot of money over time.

Understanding HSAsBe sure to maximize the tax advantages that your HSA offers. Whether you need to reimburse expenses now or can delay reimbursement until later, knowing what expenses are eligible can help you maximize the utility of your account.

Many of the HSA strategies described here emphasize the use of an HSA as a long-term tax savings vehicle. For many owners, this approach, followed over a period of years, will result in a much more secure retirement. The difficulty in following this approach is that it often requires forgoing tax-free distributions in the short-term.

Some accountholders are in a financial position to delay reimbursements, pay eligible expenses with personal funds, and preserve HSA balances for future tax-free reimbursements. Other accountholders, however, do not have that luxury. If you do not, your best strategy may be to maximize your tax savings now.

Most readers are familiar with the concept of “Section 213(d) expenses” through their participation in a Health FSA program. Health FSAs generally reimburse all Section 213(d) expenses.

Employers can narrow that list but rarely do. The list includes cost-sharing for expenses covered by a health plan, certain other services typically not covered by a health plan (acupuncture, hearing aids, orthotics, and certain forms of complementary medicine).

The list also includes non-cosmetic dental and vision expenses and over-the-counter equipment and supplies. In addition, all drugs and medicine are still eligible for reimbursement, though participants must have a valid prescription or physician’s letter of medical necessity to reimburse these items (including over-the-counter remedies) through a Health FSA.

The list of expenses eligible for tax-free reimbursement from an HSA is the same and then some. Let’s first discuss certain often overlooked expenses eligible for tax-free reimbursement through both a Health FSA and an HSA, then focus on some expenses that are eligible for tax-free reimbursement from an HSA, but not from a Health FSA.

-Travel for medical care – This category includes mileage, parking and under certain conditions, airfare, hotel, and meals. The travel must be in connection with a qualifying service. Mileage and parking are straight-forward for patients visiting local providers.

A tip: If you are undergoing regular visits, such as a regimen of physical therapy or series of allergy shots, consider choosing a practitioner near where you work. You can reimburse the travel costs associated with these visits – in effect reimbursing tax-free your commuting expenses during those days. In 2015, the standard medical mileage rate is $0.23 per mile. Reimbursing transportation and related expenses tax-free often gets into shades of gray when you travel out of town. Accompanying your child for surgery at your insurer’s center of excellence in another region of the country generally would constitute qualified travel, hotel and meal expenses. Visiting a family member in Florida in March and undergoing a routing dermatological screening is somewhat riskier, it almost surely will result in a Health FSA administrator’s rejecting the claim, and it will likely be scrutinized in an audit of HSA expenses.

– Travel to conferences – If you, your spouse, or dependent child has a diagnosed medical condition, you may be able to reimburse travel and fees associated with attending an educational convention specific to that condition.

Common examples might include a conference on modifying the behavior of a child with ADHD or on the autism spectrum or a conference on exercise and nutritional strategies for individuals diagnosed with multiple sclerosis. Again, as with much of medical travel as described above, some programs are riskier than others when it comes to reimbursement. An appropriate weekend conference two hundred miles from home probably is less risky than a week-long cruise with a daily two-hour educational program. It is best to receive legal or tax counsel if you plan to reimburse such expenses tax-free from your HSA.

– Expenses to maintain health – Expenses that you incur to maintain good health generally are not eligible for tax-free reimbursement through either account. These expenses include health clubs, vitamins, and massages.

On the other hand, if your doctor prescribes these services for certain medical conditions, they may be eligible for tax-free reimbursement. Medically necessary services might include a health club with a regimen prescribed by a physician to counteract morbid obesity, low HDL cholesterol, osteoporosis, or lower-back issues; prenatal vitamins, vitamins for individuals suffering from malabsorption of natural vitamins as a result of gastric bypass surgery and calcium supplements for women with a diagnosis of osteoporosis; and therapeutic massage as an alternative to physical therapy to treat a muscle condition.

You need to know the rules, and in many cases, you will not be able to reimburse those expenses tax-free. For example, if you are already a member of a gym, you cannot reimburse your gym membership fees tax-free, even if your doctor prescribes a regimen to address a particular condition. Know the rules, though, and you might receive a benefit that you otherwise might overlook.

– Home and auto modification – If you have a handicap that results in your modifying your vehicle or your home, the costs associated with those modifications may be eligible expenses. Be careful, though, as you can reimburse only the portion of expenses directly related to the handicap, and you cannot reimburse any portion that increases the value of the asset.

For example, installing a ramp to replace the front stairs to accommodate an eligible individual who cannot use stairs or installing railings in a hallway or bathtub probably would qualify as an eligible expense. An in-ground pool installed so that a family member with multiple sclerosis can experience water therapy probably would not be fully eligible for tax-free reimbursement (though joining a health club to participate in physician-prescribed water therapy probably would qualify).

– Vision correction surgery and orthodontia – Health insurers generally do not cover LASIK and other vision correction surgery, and dental policies usually offer only limited orthodontia coverage (and sometimes no coverage for adults). Do not assume that these expenses are cosmetic (your vanity dictates that you do not want to be caught dead in glasses, and you want to straighten your teeth to attract a suitable mate). These services treat an existing condition and therefore generally are considered medical treatments rather than cosmetic procedures. Thus, they are generally eligible for tax-free reimbursement.

– Over-the-counter drugs and medicine – As part of the Affordable Care Act of 2010, Congress determined that over-the-counter drugs and medicine (except for insulin) are no longer eligible for tax-free reimbursement from a tax-free account unless the drug or medicine is prescribed by a state-certified prescriber. This provision hit Health FSAs participants particularly hard, as many of them went on an annual end-of-year shopping spree to spend their remaining funds on ibuprofen, cough syrup, and other home remedies rather than forfeit unused balances. It probably does not make sense to visit the doctor (particularly when the visit is subject to the deductible under an HSA-qualified plan) to receive a prescription for a bottle of ibuprofen or cough drops.

On the other hand, if your seasonal allergy or GERD medicine is now sold over the counter, you might ask your doctor for a prescription the next time you have an office visit. And it might not hurt to have the doctor prescribe a pain reliever and cough medicine “as needed” to reimburse those expenses as well.

– Over-the-counter equipment and supplies – The change in over-the-counter laws effective January 1, 2011, applies to drugs and medicine only. You can still reimburse eligible equipment and supplies tax-free from your HSA. That’s the good news.

The bad news is that this category is not large. The most common eligible expenses include adhesive bandages, gauze pads, elastic bandage wraps (Ace bandages, as well as form-fitting ankle, knee and elbow pads), and wrist splints for conditions like carpal tunnel syndrome. Many other eligible items – C-PAP machines and supplies, crutches, wheelchairs  – are covered by insurance as durable medical equipment. Even in this case, any portion of these services not covered by insurance is eligible for tax-free distribution from your HSA.
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Todd Berkley is an HSA industry veteran who runs AskMrHSA.com, and is the author of the HSA Owner’s Manual.

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