An eligible medical expense is an expense that pays for healthcare services, equipment or medications for the account holder, their spouse, and any tax dependents. The IRS defines qualified medical expenses as amounts paid for the “diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.” Click here for a complete list of eligible medical expenses.

 Examples of qualified medical expenses

IMPORTANT:  As of 2011, your Health Savings Account (HSA) may no longer be used for over-the-counter drugs, unless they are prescribed by your doctor.

Insurance premiums are generally not considered qualified medical expenses. However, the following types of insurance premiums generally qualify:

• Continuation coverage under federal law (i.e., COBRA)
• Qualified long-term care insurance premiums
• Any health plan maintained while an individual is receiving unemployment compensation under federal or state law
• For accountholders age 65 and over (i.e., those eligible for Medicare), premiums for any health insurance (including Medicare Parts B & D premiums).  Premiums for a Medicare supplemental (Medigap) policy are not qualified medical expenses.

Prior to age 65, funds used to pay for non-eligible medical expenses are subject to normal income tax and a 20% penalty.  After age 65, HSA funds may be withdrawn for non-eligible expenses with no penalty (regular income tax will apply).