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. Since the money you add to your HSA is added into your account before taxes, it can lower your taxable income in any given year. You can use your HSA to pay off copays, coinsurance, and your deductible, as well as many costs that your standard health care plan may not cover.

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

HSA Basics

To open to an HSA, you must be covered under a high-deductible health plan (HDHP) and not enrolled in Medicare. Also, you can’t be claimed as a dependent on someone else's tax return from the year prior. Not can you be covered under any health plan other than an HDHP. Once your HSA is up and running, the funds you add can be used to pay for health care costs, tax-free, or they can be saved in the account for the future.

“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.

There's no need to use your HSA funds for health care costs at all though. If you don't need them, the money can build as savings. If you withdraw funds for something other than health care, it will be taxed. Once you turn 65, you can take money out of your HSA tax-free. 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.

Also, HSA contributions don’t have to just come from you. Your employer, a family member, or anyone else may add money to the account. This can be a great perk, especially if you have a family to care for.

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.

The Former ACA Rules for OTC Drugs

In March of 2020, Congress enacted the Affordable Care Act (ACA). Under this scheme, over-the-counter drugs did not count as "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 OTC 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 rules for over-the-counter drug coverage. Since it was written into law, OTC 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.

Which OTC Drugs Will Your HSA Cover?

The changes made under the CARES Act have greatly increased the number of products that can be reimbursed with an HSA. In addition to OTC drugs, 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 now falls under the purview of an HSA. 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 treatments, child care, and most other intangible costs vaguely related to health care are not covered by your HSA. For a full list of what is and what is not covered by your HSA, visit the IRS website and see publication 502. 

How Can You Pay for OTC Costs With Your HSA?

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

If you choose to use your HSA, like many people do, as a tool for long-term savings, it can be very beneficial to pay yourself back at a later time. 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. It might come in handy in case you need to confirm it in the event of an audit by the IRS.