IRS Publication 502 Decoded: What You Can Actually Buy with Your Health Wallet

Understanding the rules for health spending accounts like HSAs and FSAs is essential for maximizing their tax advantages. The Internal Revenue Service (IRS) provides a detailed guide, IRS Publication 502, which outlines exactly what constitutes a qualified medical expense. This guide is the official rulebook for what you can and can't buy with your tax-advantaged health funds. For anyone with a Health Savings Account (HSA) or Flexible Spending Account (FSA), a clear understanding of IRS Publication 502 medical and dental expenses is essential for maximizing savings and managing healthcare costs effectively.

What IRS Publication 502 Actually Covers for Health Spending Accounts

IRS Publication 502 serves as the definitive resource for taxpayers regarding medical and dental expenses. It details which costs associated with the diagnosis, cure, mitigation, treatment, or prevention of disease are eligible for tax deductions. These same rules directly apply to how you can use the funds in your Health Savings Account (HSA) and Flexible Spending Account (FSA). In essence, if an expense is listed as a deductible medical expense in this publication, it's generally eligible for purchase with your health spending account funds.

The publication is comprehensive, covering eligible expenses for yourself, your spouse, and your dependents. The foundational principle is that expenses must primarily alleviate or prevent a physical or mental illness. This means that expenses that are merely beneficial to general health, such as vitamins or a standard gym membership, are typically not covered. However, if a doctor prescribes such an item or service to treat a specific medical condition, it may become eligible. This distinction is crucial for understanding the scope of what IRS Publication 502 allows. It's less about the item itself and more about its intended purpose in your healthcare journey.

Can You Use HSA and FSA Money for Over-the-Counter Medications?

Yes, you can use your HSA and FSA funds for most over-the-counter (OTC) medications and products without needing a prescription. This is a significant convenience, allowing you to address common ailments quickly using your tax-advantaged accounts. This includes a wide range of everyday items you can find at your local pharmacy or grocery store.

Here are some examples of eligible OTC products:

• Pain relievers and fever reducers like aspirin, ibuprofen, and acetaminophen
• Allergy and sinus medications, including antihistamines and decongestants
• Cold, cough, and flu remedies such as cough drops and syrups
• First-aid supplies, including bandages, antiseptic wipes, and antibiotic ointments
• Acne medications and treatments
• Digestive health products like antacids and laxatives

It's important to remember that items intended for general well-being or cosmetic purposes are not considered qualified medical expenses. This means that everyday toiletries like toothpaste, soap, and most skincare products won't qualify. One notable exception is insulin, which is always an eligible expense.

What Medical Equipment Qualifies Under IRS Publication 502?

A broad range of medical equipment is eligible for purchase with HSA and FSA funds, provided it's used to address a specific medical need. IRS Publication 502 includes devices and supplies used for diagnosing, treating, or mitigating an illness or disease. The key is medical necessity.

Some common examples of qualifying medical equipment include:

• Diagnostic Devices: Items that help you monitor your health, such as blood sugar monitors for diabetes, blood pressure monitors, and thermometers, are all covered.
• Mobility Aids: Equipment that assists with movement, such as crutches, canes, walkers, and wheelchairs, are eligible expenses when needed for a medical reason.
• Hearing and Vision Aids: This category includes hearing aids and their batteries, as well as prescription eyeglasses, contact lenses, and the necessary cleaning solutions.
• Respiratory Equipment: Devices prescribed for breathing conditions, like CPAP machines for sleep apnea and nebulizers for asthma, are qualified expenses.
• Durable Medical Equipment: This category can include larger items like a hospital bed or oxygen equipment if a doctor deems it medically necessary for home use.

Furthermore, the costs associated with operating and maintaining this equipment are also generally considered qualified medical expenses. This includes things like batteries, replacement parts, and necessary supplies, ensuring you can continue to use your essential medical devices without financial strain.

Are Mental Health Services Covered by HSA and FSA Rules?

Absolutely. Mental health services are explicitly covered as qualified medical expenses under the rules of IRS Publication 502. This is a critical component of modern healthcare, and your HSA or FSA funds can be used to pay for a variety of treatments and services aimed at diagnosing and treating mental health conditions.

Eligible mental health expenses include:

• Therapy and Counseling: Payments to licensed professionals such as psychologists, psychiatrists, and therapists for individual or group sessions are covered.
• Inpatient Treatment: The costs associated with inpatient care at a therapeutic center for addiction, depression, or other mental health conditions are eligible. This can include the costs of meals and lodging provided during treatment.
• Prescription Medications: Drugs prescribed for mental health conditions, including antidepressants, anti-anxiety medications, and mood stabilizers, are qualifying expenses.
• Transportation: The cost of transportation to and from necessary medical appointments, including therapy sessions, can also be included as a medical expense.

It's important to distinguish between medical treatment and general improvement. For example, marriage counseling is generally not covered unless it's treating a specific diagnosed mental health condition in one of the partners.

Can You Buy Vision and Dental Items With Health Spending Account Money?

Yes, most expenses related to routine and necessary vision and dental care are eligible under IRS Publication 502 medical and dental expenses. This allows you to use your HSA and FSA funds for a wide array of services and products that are essential for maintaining the health of your eyes and teeth.

For vision care, eligible expenses include:

• Prescription eyeglasses and sunglasses
• Contact lenses and the required cleaning solutions
• Eye exams with an ophthalmologist or optometrist
• Surgical procedures to correct vision, such as LASIK or radial keratotomy

For dental care, a similarly broad range of treatments qualifies:

• Routine check-ups, cleanings, and X-rays
• Treatments such as fillings, crowns, and root canals
• Orthodontia, including braces and retainers, for both children and adults
• Procedures like extractions and the cost of dentures or other dental prosthetics

The primary exclusion in this category is cosmetic procedures. For instance, teeth whitening is generally not covered because it is not considered medically necessary. The focus remains on treatments that prevent or treat a dental disease or condition.

What Prescription Items Are Eligible Under Publication 502?

Prescription medications are a primary category of eligible expenses under Publication 502. As a simple rule of thumb, if a medicine requires a prescription from a doctor to be dispensed by a pharmacist, it qualifies for payment with HSA or FSA funds. This applies to medications for a vast range of conditions, from short-term acute illnesses like infections to long-term chronic diseases such as high blood pressure or diabetes.

The form of the medication does not matter. Beyond traditional pills and capsules, other prescribed items are also covered. This includes prescription creams and ointments, medicated patches, inhalers for respiratory conditions, and injectable drugs. The cost of birth control pills and other prescribed contraceptives is also a qualified medical expense. Essentially, any item your doctor prescribes to treat a specific medical condition will fall within the guidelines of IRS Publication 502.

Are Alternative Medicine Treatments HSA/FSA Eligible?

Some, but not all, alternative medicine treatments are eligible for reimbursement with HSA and FSA funds. According to IRS Publication 502, for an alternative treatment to qualify, it must be administered for the treatment of a specific, diagnosed medical condition and not just for the promotion of general well-being. This is an area where careful documentation is particularly important.

Examples of potentially eligible alternative treatments include:

• Acupuncture: This is often a covered expense when used to treat a diagnosed condition like chronic pain, nausea from chemotherapy, or migraines.
• Chiropractic Care: Adjustments and treatments provided by a licensed chiropractor for specific neuromuscular conditions, such as back pain, neck pain, or sciatica, are typically eligible.

On the other hand, treatments that are beneficial for general health but not directed at a specific ailment might not qualify. This could include certain dietary supplements, vitamins for general wellness, or therapies focused on relaxation rather than treating a medical issue. If you're considering an alternative treatment, it's wise to obtain a Letter of Medical Necessity from your primary care physician to confirm that it's for a specific condition.

What Medical Expenses Don't Qualify Under IRS Publication 502?

While many expenses are covered, IRS Publication 502 also specifies a number of items and services that do not qualify as medical expenses. Understanding these exclusions is just as important as knowing what is covered, as it helps you avoid making ineligible purchases and potential issues with your health spending accounts. These are typically costs related to general health, wellness, or cosmetic purposes rather than the treatment or prevention of a specific medical condition.

Here is a list of common expenses that are generally not eligible:

• Cosmetic Surgery: Procedures that are not medically necessary, such as face-lifts, hair transplants, or liposuction, are not covered.
• General Wellness Programs: Gym memberships, fitness programs, and health club dues are not eligible unless specifically prescribed by a doctor to treat a diagnosed medical condition like obesity or heart disease.
• Toiletries and Personal Care Items: Everyday items like toothpaste, mouthwash, soap, shampoo, and cosmetics do not qualify.
• Over-the-Counter Nicotine Products: Nicotine gum and nicotine patches that don't require a prescription are not eligible expenses, although smoking cessation programs and prescription drugs for nicotine withdrawal may be covered.
• Maternity Clothes: While the direct costs of pregnancy and childbirth are covered, specialized clothing for maternity wear is not.
• Funeral Expenses: Funeral, burial, or cremation expenses are not considered deductible medical expenses.

How to Maximize Your Health Spending Account Benefits

To get the most out of your HSA or FSA, strategic planning and meticulous record-keeping are essential. Start by estimating your predictable medical expenses for the upcoming year, including recurring prescriptions, anticipated doctor visits, and planned dental or vision care. This will help you determine an appropriate contribution amount during your open enrollment period.

Always keep your receipts and any necessary documentation for your purchases. While the debit card linked to your account makes transactions easy, you may still need to submit receipts to your plan administrator for verification, especially for FSAs. For any expense that isn't obviously medical, such as a specialized diet plan or a gym membership prescribed for a specific condition, it is a best practice to obtain a Letter of Medical Necessity from your doctor. Finally, be mindful of deadlines. While HSA funds roll over from year to year, most FSAs have a "use-it-or-lose-it" rule. Some employers offer a grace period or a limited rollover amount, so be sure to understand your specific plan's rules to avoid forfeiting your hard-earned funds.

How Venteur Simplifies Modern Health Benefits

While HSAs and FSAs offer valuable tax advantages, the landscape of employee health benefits is evolving to provide even greater flexibility and personalization. At Venteur, we are at the forefront of this shift with our Individual Coverage Health Reimbursement Arrangement (ICHRA) solutions. An ICHRA allows employers to offer their employees tax-free funds to purchase their own health insurance plans.

This moves away from the one-size-fits-all model of traditional group plans and empowers employees to choose coverage that truly fits their individual needs, from the doctors they want to see to the budget they can afford. 

Venteur's user-friendly platform simplifies this entire process. We provide expert support and an AI-powered marketplace that guides employees to the best plan for them, helping them make smart, confident decisions about their health. For employers, this means reduced administrative burdens and the ability to offer a highly competitive benefits package that attracts and retains top talent.

Conclusion

Understanding what you can buy with your HSA and FSA funds is the first step toward taking full control of your healthcare spending. IRS Publication 502 provides the detailed framework, covering a vast range of eligible expenses from prescription drugs and doctor visits to dental care and medical equipment. By familiarizing yourself with these guidelines and keeping good records, you can ensure you are making the most of every tax-advantaged dollar. And as the world of benefits continues to evolve, innovative solutions like those offered by Venteur are making it easier than ever for both individuals and companies to navigate their health and financial well-being with confidence and clarity.