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.
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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Question: If your spouse is not on your HDHP and has their own lower deductible plan, can you use your HSA funds to pay for their qualified expenses?
Contribution amounts to the HSA are impacted by who is covered by the HSA-eligible HDHP plan (there is an “individual” amount which is half a “family” amount) – but you can still withdraw funds to pay for qualified medical expenses for anyone in the household.
Such fantastic news, especially for women! Dubbed crossed it is indeed permanent. One note- for the Federal FSA plan at least, hand sanitizer has always been reimbursable with a receipt.
Are you sure? I’ve seen conflicting information on this. IRS Publication 502 (which hasn’t been updated yet, with this update) doesn’t list it for 2019.
https://www.irs.gov/pub/irs-pdf/p502.pdf
Yes, you can search for allowable expenses here: (https://www.fsafeds.com/explore/hcfsa/expenses?q=hand%20sanitizer) and I”ve gotten reimbursed in prior years, it is considered a first aid supply so that along with bandages does work). Anyways, that doesn’t mean it is universally true- so with CARES making that so, this is great news for all.
Anything cited from the IRS? I don’t see first aid listed in Publication 502 either. I’m not saying you or fsafeds.com are incorrect, I just like to see written verification from the ultimate judge and juror before giving my blessing on this site.
My one question for this is how does this affect your health plan deductible? If I have a $7000 deductible, spend $1000 on OTC medication and then $50,000 medical bills. Does this lower my deductible for medical care to $6000?
Or is the situation that in the above case, the medical care would still be $7000 but I could withdraw $8000 from my HSA/FSA this year to cover the medical and OTC medication?
G.E. – According to the lively list you posted, hand sanitizer is eligible.
https://livelyme.com/whats-eligible/#Anti-Bacterial-Hand-Sanitizer
No – your insurance company would have no way of knowing the expense, as the purchase would not be through insurance, as it would with a prescription medication.
I love the HSA and have not used it to its full potential until my 2nd daughter was born in March of this year. Crazy time to be born, huh?!
This is a great article that elaborates what can and cannot be purchased with the HSA. The loosened restrictions will provide more incentive for me to max it out every year!
I recently researched some information on HSA’s and discovered that 96% of families use almost all of the funds in the account. I hope to be one of the 4% to be able to not use it all, and invest it for that 3x tax savings full potential!
Great read!