Does My HSA Cover Over-the-Counter Medicine?

woman in lab coat offering prescriptions

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Health savings accounts (HSA) allow you to save money so you can pay for medical expenses tax-free. To contribute to an HSA, you must be covered under a high-deductible health plan (HDHP) and not enrolled in Medicare. In addition, you can’t be claimed as a dependent on another individual’s tax return from the previous year or be covered under any health plan other than a qualified HDHP. 

Since your HSA contributions are deposited into your account before taxes, they can lower your taxable income. You can use your HSA to pay off copays, coinsurance, and your deductible as well as some expenses your health care plan may not cover.

“You might be surprised at all the ‘qualified medical expenses’ you can pay for using your HSA funds—everything from walk-in visits and surgical costs to dental expenses, mental health services, vision care, prescription drugs, and much more,” explained Tom Torre, co-founder of Bend Financial, in an email to The Balance.

Since you’ll be able to spend the funds on anything you’d like without paying a penalty once you turn 65, an HSA can also be a great way to save for retirement. The money you save in your HSA will always be yours, even if you sign up for a new HDHP or get a new job. In addition, HSA contributions don’t have to just come from you. Your employer, an extended family member, or anyone else may contribute to the account. This can be a great perk, especially if you have a family to care for.

Historically, HSAs only allowed you to use funds for prescription medications, not over-the-counter (OTC) drugs, but that has changed as a result of the coronavirus pandemic. Here, we’ll explore how. 

The Previous ACA Rules for OTC Medications

Under the Affordable Care Act (ACA), which was enacted in March 2010, over-the-counter medications were not considered qualified medical expenses for HSAs. The same rules applied for flexible spending accounts (FSAs)—pre-tax financial accounts often offered by employers. If you were dealing with heartburn, for example, you wouldn’t be able to use your HSA money to cover an over-the-counter drug like Tums or Prilosec. Instead, you’d have to pay for it out of pocket. 

Changes Under the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act—enacted in March 2020—has changed the requirements for over-the-counter medication coverage. Since it was written into law, over-the-counter medical purchases can be reimbursed via an HSA or FSA without the need for a doctor’s prescription. This change is retroactive to Jan. 1, 2020, and has no expiration date.

HSA-Eligible OTC Medications

The changes made under the CARES Act have significantly increased the number of products that qualify for reimbursement with an HSA. In addition to OTC medications, such as pain relievers, anti-inflammatories, and cough syrups, shoppers can now purchase dozens of other products for varying needs. Baby lotions, digestive aids, and sleep aids are just a few examples of what is now HSA-eligible. Also, for the first time in history, feminine hygiene products are included in the list of HSA-qualified OTC medical product expenses.

Funeral plans, beauty enhancement procedures, child care, and most other non-tangible, health-related expenses are not covered by your HSA. For a full list of what is and what is not covered by your HSA, visit the IRS official website and see publications 502 and 969. 

How To Pay for OTC Expenses With Your HSA

There are a number of ways to use your HSA to pay for OTC expenses. You may pay at the point of service with your HSA debit card or you can pay out of pocket and reimburse yourself later with your HSA funds. 

“Reimbursing yourself at a later time is especially useful if you choose to leverage your HSA’s unique ability to be used as a long-term investment vehicle,” Torre explained. When you invest funds in your HSA, your money has the chance to grow tax-free and be used in the future when you need it.

No matter which type of HSA reimbursement you choose, you’ll want to make sure you save the receipt and explanation of benefits (EOB) for the expense in case you need to confirm its eligibility in the event of an IRS audit or another unforeseeable situation.