The IRS has just released the 2024 limits for Health Savings Accounts (HSAs) and High Deductible Health Plans (HDHPs). HSA contribution and plan limits will increase to $4,150 for individual coverage and $8,300 for family coverage. Changes to these limits will take effect January 2024.
HSAs are tax-exempt accounts that help people save money for eligible medical expenses. To qualify for an HSA, the policyholder must be enrolled in an HSA-qualified high-deductible health plan, must not be covered by other non-HDHP health insurance or Medicare, and cannot be claimed as a dependent on a tax return.
The IRS has issued FAQs that explain when certain costs related to nutrition, wellness, and general health are medical expenses under Code § 213 that may be paid or reimbursed under a health FSA, HSA, or HRA. As background, Code § 213 defines medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. The FAQs explain that medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness, and do not include expenses that are merely beneficial to general health.
The FAQs confirm that the costs of dental, eye, and physical exams are medical expenses that can be paid or reimbursed by a health FSA, HSA, or HRA because these exams diagnose whether a disease or illness is present. The costs of smoking cessation programs and programs that treat drug-related substance use or alcohol use disorders are also medical expenses because they treat a disease. For the cost of therapy to be a medical expense, the therapy must treat a disease—thus, amounts paid for therapy to treat a diagnosed mental illness are medical expenses, while amounts paid for marital counseling are not. Likewise, the costs of nutritional counseling and weight-loss programs are medical expenses only if the counseling or program treats a specific disease diagnosed by a physician (e.g., obesity or diabetes); otherwise, these costs are not medical expenses. The cost of a gym membership is a medical expense only if the membership was purchased for the sole purpose of affecting a structure or function of the body (e.g., a prescribed plan for physical therapy to treat an injury) or treating a specific disease diagnosed by a physician (e.g., obesity or heart disease). However, the cost of exercise for the improvement of general health is not a medical expense, even if recommended by a doctor.
The FAQs also explain the circumstances under which the cost of food or beverages purchased for weight loss or other health reasons will qualify as medical expenses, and that the cost of non-prescription drugs can be paid or reimbursed by a health FSA, HSA, or HRA even though these items (except for insulin) are not deductible under Code § 213. The FAQs confirm that the cost of nutritional supplements is not a medical expense unless the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.
QUESTION: Our company sponsors a high-deductible health plan (HDHP) in conjunction with employee HSAs. Can the medical expenses of our employees’ adult children who otherwise qualify for tax-free coverage under the HDHP be reimbursed tax-free from the employees’ HSAs?
ANSWER: Not necessarily—it depends on whether the adult children qualify as tax dependents under the HSA rules. As group health plans, HDHPs that provide dependent coverage of children must make the coverage available until a child turns age 26. (The age 26 mandate does not generally apply to HSAs because they are not group health plans.) The income exclusion for employer-provided health coverage includes employees’ children who are under age 27 as of the end of the taxable year, regardless of whether those children qualify as tax dependents. But similar provisions do not appear in the HSA tax-free reimbursement rules. Instead, whether an adult child’s medical expenses can be reimbursed tax-free from a parent’s HSA depends on whether the child qualifies as a tax dependent for HSA distribution purposes—i.e., whether the adult child is a qualifying child (for example, due to disability) or a qualifying relative (where the parent provides over one-half of the child’s support). Distributions from a parent’s HSA that reimburse a nondependent adult child’s medical expenses are taxable and may be subject to an additional 20% tax.
Thus, the medical expenses of some adult children who are enrolled as dependents in your company’s HDHP will not qualify for tax-free reimbursement from the employee-parent’s HSA. It is possible, however, that these children may be HSA-eligible themselves. If they cannot be claimed as tax dependents and they meet the other HSA eligibility requirements, they could open HSAs of their own.
The HSA Store is akin to the FSA Store, as it’s an outlet for consumers to buy eligible products to fit their Health Savings Account needs. This online store carries over 2,500 products — from first-aid kits, orthodontia to pregnancy tests.
To best utilize the HSA Store, search any HSA eligible item you need for purchase. From there, add a promo code to any purchased HSA eligible item. All promo codes can be turned into points for future purchases.
The smallest denomination of points that can be redeemed for later use is 350 ($10) and largest is 1,500 ($50). You cannot redeem fewer than 350 points at a time. Balances under 350 points cannot be exchanged for a partial value dollar reward. Points expire six months (180 days) following your last order date. To learn about all HSA Store eligible items, look here.
