In its 22nd semi-annual Health Savings Accounts (HSAs) report, Minneapolis-based investment services provider, Devenir, noted that stateside collective HSA value across more than 31 million accounts approached $93 billion as of September 2021; however, only 36% of eligible employees reportedly use this important savings tool.
Why is this under-utilized product so beneficial?
Qualifying individuals with High-Deductible Health Plans (HDHPs) enjoy three-pronged tax benefits: 1.) Tax-deductible contributions to their HSA, 2.) Tax-free earnings on respective investments; 3.) Tax-free withdrawals on those expenses deemed as “qualified medical.”
Unlike other types of retirement or savings accounts and financial products, HSAs roll over year after year after year …
The HSA continues to roll over regardless of life circumstances and transitions; for instance, it does not matter if you leave the company that originally established the account and offered it to you, or if you are furloughed or retire and leave the labor market entirely.
Once you’ve blown out 65 candles, you can use the funds in your account for any purpose. So, due to your wisdom and experience, the dollars are no longer limited or restricted exclusively to “qualified medical expenses.”
It is not an overstatement to say that HSAs present the most (triple!) tax-advantaged way to plan, save and pay for continuously soaring health-related expenses (and expenses in general after you reach the 65-year mark).
As it relates to the expenses that would pertain to most account-holders who haven’t quite reached that season of life, there are numerous win-win-win ways to use your monies. We’ve highlighted a few of the more overlooked or surprising options:
PPEs (Personal Protective Equipment) – Eligible PPE expenses may apply to you, the account-holder or owner, as well as to your spouse or any dependents that you may have. Eligible products include masks, as well as hand sanitizers and sanitizing wipes. Likewise, COVID-19 tests that are administered at home also fall under the qualified medical expense category.
OTC Meds – Following the passage of the historic CARES Act in 2020, many Over-the-Counter products and medications that were formerly not reimbursable or ineligible to be deducted as expenses on federal income taxes are now fully eligible (no strings attached or prescriptions necessary). These qualifying purchases span everything from cold and flu non-prescription products, to nasal sprays and eye drops. Additionally, the language of the act also covers feminine care products – tampons and pans to menstrual cups and pain relievers.
Skin care – There are caveats associated with this category, of course. Notably, the product still has to have some quality that supports, treats a condition, or otherwise advances health. For instance, even though everyone knows a tan is not healthy, incidences of skin cancer are rising. So, the IRS recognizes any “sun protection products” as qualifying medical HSA expenses. After all, a good UVA-UVB broad-spectrum sunscreen or even lip product with SPF (at least 15!) is far less costly to cover as it prevents and protects rather than resolves to treat the cancer with expensive surgical interventions. The same concept applies to products that may be needed to reduce flare-ups or otherwise treat and manage skin conditions ranging from eczema to rosacea.
Products that support an active, healthy lifestyle – Weekend athletes and competitive ones alike may be surprised to know that their costly kinesiology tape, hot and cold packs, and other like items to reduce inflammation, and promote quick healing and performance are HSA-eligible expenses. After all, the sooner that you are able to get back on the track, trail, court or field without pain, the better off your body will be, which ultimately leads to less utilization of costly health care services.
Smoking/tobacco cessation products and programs – It probably comes as no surprise to anyone that smokers and those who use tobacco products also use health care services at a higher rate than non-smokers. These services are generally more costly, as smoking is a risk factor for a lengthy list of dangerous systemic condition, no less heart disease and respiratory diseases like COPD. Furthermore, the CDC attributes smoking as a risk factor for at least a dozen different types of cancers – bladder to blood, and larynx to liver. HSAs support quitting by recognizing nicotine gum, patches, lozenges, and other aids as medically necessary and eligible.
Services – As referenced by smoking cessation programs, potentially surprising HSA expenses transcend products. Care that may qualify includes the likes of fitness or weight loss programs that have been deemed as “qualifying medical”; for instance, you have comorbidities and your doctor “prescribes” weight loss services to aid in getting you healthier and reducing risks or in managing existing diseases such as diabetes or high blood pressure through fat reduction. Additional “includable” services as defined by the IRS (and this is by no means “exhaustive”):
Home remodelers or maintenance technicians to support necessary modifications that keep one in his or home longer, safely; for instance, the introduction of handrails or grab bars, and widening doorways
All medically-necessary transportation to and from preventive appointments or even to and from support meetings (alcoholism, overeating, depression, etc. etc.)
Guide dog and service animal grooming and other “maintenance” costs such as vet care and training to perform, refine, or support new and evolving duties or responsibilities
Lodging and meals that are needed for both the person who owns the account and who is receiving the care, as well as lodging for those who have accompanied the patient or individual on the receiving end of the health care services
Removal of lead-based paint or other “capital expenses” that are necessary to support the health of a person with a disability, or the overall health of the household.
Fittings that are related to cancer treatments and recovery; for instance, wig-fitting during chemotherapy, or guidance on garments following mastectomies and other cancer treatments/surgeries
Care or medical expertise that is necessary and delivered via telehealth or remotely also applies and is increasingly acknowledged by the IRS and legislative bodies amid the current and ongoing societal disruptions brought on by that transformative force that starts with a “C” and ends with a “19.”
For a complete and detailed list of “includible” medical expenses, visit the IRS page here. Are you taking full advantage of the benefits that are available to you via your employer? Business owners, are you taking advantage of this powerful way to support workplace morale and to continue to demonstrate that you value your employees? We at O’Donnell, Ficenec, Wills & Ferdig encourage you to contact us with any questions that you have about HSAs. Both our areas of expertise and clientele are diverse. We look forward to partnering with you!