Use Your FSA, HSA, or HRA to Pay for OTC Medications & Menstrual Care Products

CARES Act OTC Medication & Feminine Hygiene Product Qualified Medical Expense Changes

One of the lesser known but potentially high impact COVID-19 relief measures within the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by Congress, is that you can once again use Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA) funds to pay for over-the-counter (OTC) medications, without a prescription. The ability to use HSA, FSA, and HRA funds for non-prescribed OTC items was (unfortunately) removed in 2011, with the exception of prescribed medications. Now, it’s back.

Examples of common eligible medications include pain relievers, allergy medication, cough medicine and drops, sleep aids, eye drops, stomach/intestinal remedies, medicinal creams, nasal sprays, and decongestants. As an oversimplification, you can think of medicines with active ingredients listed on the product label as newly eligible. Lively, my pick for the top HSA account, maintains a very thorough list of qualified medical expenses that has been updated. Items like common deodorant, shampoo, soap, and toilet paper are not eligible. I’ve also created a list of HSA/FSA-eligible qualified medical expenses.

Additionally, as part of the CARES Act legislation, menstrual care feminine hygiene products such as tampons, pads, liners, cups, sponges, or similar products are now considered qualified medical expenses, and you can use the same tax-advantaged accounts to pay for them. As far as I am aware, this is the first time these items have been eligible as qualified medical expenses.

CARES ACT OTC Menstrual qualified medical expenses

These two changes are great news as they could save everyone with an HSA, FSA, or HRA hundreds per year! The benefit of using your HSA, FSA, or HRA to pay for these items now, is that you would be paying with pre-tax, tax-free dollars. So long as you stay under the annual contribution limits and qualify to contribute, funds contributed to these accounts are not taxed at the time of contribution or withdrawal for qualified expenses. So, you can save a significant amount of money when purchasing these items with your accounts!

These rule changes are retroactive to January 1, 2020, and there does not appear to be an expiration date, though official IRS documentation on this has not yet been published.

By the way, I always wondered about the terminology “over the counter”, given that it refers to items that you can buy “off the shelf”, without a prescription (and prescription drugs are bought “over the counter”), so I looked into the origins and found this explanation,

Actually, although “Over-the-Counter” refers to drugs that can be bought without any permit or prescription, originally, all of these drugs were still behind a counter, where you asked a pharmacist, and he would simply give it to you “over-the-counter”. This way, the pharmacist could advise you on usage, give suggestions, and make sure you don’t create a dangerous combination by mixing two drugs incorrectly. However, as pharmacists became more valuable commodities, and we moved into a more self-service world, the Over-The-Counter drugs were moved out onto the shelves, but the name stuck.

Now you know.

How to Expense OTC Medications & Feminine Hygiene Products with your HSA, FSA, or HRA

There’s an important PSA here. At least for a little while, you may need to pay out-of-pocket for these items and keep your receipt to expense or claim the purchases with your HSA, FSA, or HRA provider and have them reimburse you, versus simply using your related account’s debit card. This is because the merchants you purchase from must update their point-of-sale (POS) system to recognize these products as qualified medical expenses.

Personally, whenever I purchase these items from a pharmacy, grocery, convenience, or online retailer, I will combine them into a separate checkout transaction from unqualified non-medical expenses, so that I have a separate receipt, in case the debit card transaction does not go through and I have to use a regular credit card and expense and get reimbursed later with a receipt.

Telemedicine, Virtual Health Care, & COVID-19 Treatment & Testing Are Now Qualified Expenses (& Potentially Pre-Deductible on HDHPs)

In separate, but related news, qualified medical expenses were widened to include telemedicine (telehealth) and virtual mental healthcare as well. This means that you can now use pre-tax HSA, FSA, and HRA funds on these services, without penalty. If you are using a high-deductible health plan (HDHP), check with your HDHP provider to confirm that telehealth and other remote care services are considered pre-deductible in your plan. This provision lasts until December 31, 2021 (your plan year must begin prior to this date).

Additionally, testing and treatment of COVID-19 are also considered eligible medical expenses per IRS Notice 2020-15. That means that you can use your tax-preferred Health Savings Account (HSA) funds to pay for expenses incurred for these purposes.

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