When you participate in a healthcare benefits account, such as a Flexible Spending Account (FSA) or Health Savings Account (HSA), you set aside money to help cover out-of-pocket healthcare expenses. With either account, you can use the money for yourself or a qualified dependent, like a spouse or child. The IRS has published guidelines for qualified healthcare expenses that can be paid for with these accounts. In recent years, the amount of eligible expenses has expanded, giving account owners more options for using their benefits; now you can buy over-the-counter medications, menstrual care products, and COVID-19 PPE, among other items and services.
If you have a Health Reimbursement Arrangement (HRA) through your company, the plan’s qualified healthcare expenses are up to the employer’s plan design, though the expenses must come from the IRS-approved list. Check your Summary Plan Description or contact your HR department for more information.
According to IRS Publication 502:
Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.
Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.
The list of qualified and non-qualified healthcare expenses is not all-inclusive. Contact your benefits administrator for a full list.
You can use your FSA, HSA (and HRA, if permissible) to pay for qualified items and services at many retail locations and dentist and doctors’ offices. The easiest way is to use your healthcare benefits card. Major pharmacy locations include CVS, Walgreens, and RiteAid; most local/independent pharmacies will also accept a benefits payment card.
Another option is to shop online retailers, many of which will validate your purchase at checkout. You can learn more about online retailers here.
If you don’t have a benefits card, you can always purchase with your own money and file a claim for reimbursement. Keep your receipts and prescription documents, because you may need to turn them in with your claims forms or validate your purchase later.
There is one thing to keep in mind when using your benefits account to pay for qualified healthcare expenses.
With an HSA, you can only use the account’s available balance. However, if you do not have the money in the account at the time of purchase, you can save the receipt and submit it later for reimbursement. This only applies to purchases made after your HSA was opened.
If you have an FSA, your entire annual contribution is available on the first day of the plan year. For example, during enrollment season you chose to put $1,500 into your FSA. On January 1, if you had a major expense that cost $1,500, you can use your FSA – even if your contributions have not totaled that amount yet. Your contributions will still come out of your paycheck, but you won’t be able to use any more money once the available balance is zero. Think of it as an interest-free loan.
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