The HR Manager's Guide to Navigating HSA Qualified Expenses

What is an HSA?  

Let's start with a quick summary of HSAs. An HSA is a tax-advantaged account designed to help individuals who are enrolled in high-deductible health plans (HDHPs) save for future medical expenses. This account allows employees to contribute pre-tax dollars, which can then be withdrawn tax-free when used for qualified medical expenses. The key advantages of HSAs are that the funds roll over year after year, and the account remains with the employee, even if they switch jobs or retire.

What are Qualified Medical Expenses for HSAs? 

HSA qualified expenses are ones that the IRS deems eligible for tax-free withdrawal from an HSA. They range from doctor's fees and prescription medications to certain types of preventive health services, and each have specific rules about what does and does not qualify. 

Medical Care Services

Services related to medical care are typically provided by licensed health professionals such as doctors, dentists, and optometrists. HSA funds can typically be used for copays when receiving medical services like:

• Check-ups and physical exams
• Specialist visits (e.g., cardiologists or dermatologists)
• Hospital stays and surgeries
• Laboratory tests and diagnostics (e.g., blood tests or biopsies) 
• Gynecology and prenatal health visits 

Medications

HSAs allow employees to use their accounts to offset the costs of many over-the-counter (OTC) and prescription medications needed to treat medical conditions. 

Examples of covered OTC medications include: 

• Pain relievers such as aspirin, ibuprofen, and acetaminophen
• Allergy medication like Benadryl or Claritin
• Cold and flu medicines like DayQuil or NyQuil
• Heartburn and indigestion remedies such as Prilosec and Tums
• Anti-fungal creams and treatments

Examples of qualifying prescription medications include: 

• Prescription drugs for conditions such as high blood pressure or heart disease
• Insulin and related supplies
• Contraceptive pills or birth control devices
• Antibiotics to treat infections
• Antidepressants for mental health conditions
• Blood pressure medication for hypertension

Mental Health Care

HSAs also cover a variety of mental health services. These can provide vital support for employees dealing with mental health issues, fostering a healthier, more resilient workforce.

Examples of qualifying mental health services can include: 

• Psychotherapy and counseling
• Psychiatric treatments
• Group therapy 
• Inpatient mental healthcare
• Substance use disorder treatments
• Mental health screenings 
• Family counseling 
• Teletherapy or virtual therapy  

Dental and Vision Care

While often separate from standard health insurance, dental and vision care are crucial components of overall health, but HSAs often cover many dental and vision-related costs.

Examples include: 

• Cleanings, X-rays, and fillings
• Dental surgery 
• Eye exams, glasses, and contact lenses
• Laser eye surgery (e.g., Lasik)

Preventive Care and Wellness

The old saying "an ounce of prevention is better than a pound of cure" is especially true in healthcare. Preventive care and wellness services help keep employees healthy, ultimately reducing healthcare costs.

Examples of qualifying preventive care and wellness expenses include: 

• Immunizations and vaccines
• Routine cancer screenings
• Smoking cessation programs
• Obesity weight-loss programs

Medical Equipment and Supplies

Medical equipment and supplies can be necessary for managing various health conditions. These items can significantly improve the quality of life for those managing chronic conditions or recovering from an illness or surgery. 

Equipment that may be covered by HSAs include:

• Crutches, canes, wheelchairs, and walkers
• Guide dogs
• Prescription eyeglasses and contact lenses
• Hearing aids and batteries
• Blood sugar test kits and testing strips for diabetics
• Breathing devices such as CPAP machines for sleep apnea
• Hospital beds for home use
• Oxygen equipment for respiratory conditions
• Orthopedic shoes or inserts, if they alleviate a specific medical condition

Long-Term Care Services

When it comes to long-term care services, a number of specific expenses can be covered by an HSA. These include:

• In-home care services, such as nursing care or physical therapy
• Assisted living or nursing home care 
• Respite care or short-term temporary relief for individuals who are primary caregivers
• Adult day care services for those with physical or cognitive impairments
• Hospice services for terminally ill individuals
• Therapeutic, rehabilitative, or personal care services

What Does Not Qualify as HSA Expenses? 

While the range of HSA-eligible expenses is broad, it's also important to be aware of the costs that don’t qualify for tax-free HSA withdrawals. Since the IRS has specific guidelines about what constitutes an HSA-qualified medical expense, misusing funds can lead to a20% penalty tax on non-qualified expenses, so it's important to verify before making a withdrawal.

Here are some examples of expenses typically not covered by HSAs:

• Cosmetic surgery or procedures like facelifts, hair transplants, teeth whitening, or liposuction
• Health club memberships or fitness programs, unless they're recommended by a healthcare professional to treat a specific medical condition
• Personal use items like toothpaste, toiletries, or cosmetics, even if a doctor recommends them
• Expenses that have been reimbursed by insurance or other sources
• Non-prescription sunglasses, even if they have UV protection
• Aromatherapy 

This list is not exhaustive, and the regulations can change. You can refer to theIRS's official list of non-qualified HSA expenses or consult a tax advisor when unsure. 

The Role of HR in Managing HSA Qualified Expenses

Given that the guidelines for HSA qualified expenses can evolve over time, it’s helpful to keep employees informed when there are changes. This helps your team members  be prepared to use their HSA accounts correctly. 

Here are a few tips you can follow to manage this ever-changing health benefit: 

• Stay updated: Regularly review IRS updates and industry news to keep abreast of any changes in HSA qualified expenses.
• Communicate changes: Relay any modifications in HSA regulations to employees promptly and clearly. Provide these updates throughout the year, not just during onboarding or enrollment periods.
• Educate employees: Host regular informational sessions about HSAs, their benefits, and qualified expenses for both new and existing employees.
• Provide resources: Ensure comprehensive resources on HSA eligible expenses, FAQs, and contacts are easily accessible.
• Simplify the information: Break down complex HSA rules into straightforward language, using examples to help clarify points.
• Use multiple channels: Disseminate HSA information via emails, newsletters, meetings, and individual consultations.
• Leverage visual aids: Use infographics, charts, and videos to make HSA information more engaging and digestible.
• Encourage questions: Foster a safe environment for employees to ask questions, helping to clarify any confusion around their HSA benefits.

Helping Employees Stay Healthy

Staying healthy can be hard for busy employees. The more tools they have at their disposal — from HSAs to wellbeing programs — the better equipped they are to take care of their mental and physical wellness. And this all comes back around: Companies using the right wellbeing strategies are more than five times as likely to have low annual healthcare claim costs.

Partnering with Wellhub gives your employees access to thousands of wellbeing services, from in-person fitness classes to subscription meditation apps. The flexible monthly subscription enables them to connect with whatever tools they need to advance their wellness journey. 

Speak with a Wellbeing Specialist today for help supporting your employee’s health!