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CARES Act Expands HSAs

by Craig Moser on May 29, 2020

By Sarah Brenner, JD
IRA Analyst
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@theslottreport

The recently passed CARES Act expands HSAs and what they cover.  These changes will allow you to access more medical services without worrying about your deductible, and also enable you to take more tax-free distributions from your HSA. Here’s what you need to know.

Telemedicine Without Meeting Deductible

HSAs are designed to work with a high-deductible plan. To be considered a high-deductible plan, a health plan must meet certain requirements. One of them is that the health plan cannot waive the deductible for medical expenses, unless they are considered preventative. The CARES Act creates a temporary exception to this rule. For plan years beginning on or before December 31, 2021, a health plan is permitted to provide coverage for telehealth and other remote care services without the deductible being met and still be considered a high-deductible plan for HSA purposes.

Qualified Medical Expenses Expanded

You can take tax-free distributions from your HSA to pay for “qualified medical expenses”. The definition of qualified medical expenses for HSA purposes is pretty specific. In 2010, the Patient Protection and Affordable Care Act (PPACA) limited the definition of qualified medical expenses for HSAs. The revised definition required that over-the-counter medicines (other than insulin) be prescribed by a physician in order for the medicine to qualify for a tax-free HSA distribution.

The CARES Act eliminates this restriction permanently. Distributions from an HSA that are qualified medical expenses are no longer limited only to those medicines and drugs that are prescribed. This means that you can take a tax-free distribution from your HSA for over-the counter medicines and drugs, such as nonprescription aspirin and other pain relievers, allergy medicine, or antacids. Additionally, the CARES Act expands the definition of qualified medical expenses to include amounts paid for menstrual care products. These provisions apply to distributions from HSAs for amounts paid after December 31, 2019.

Copyright © 2020, Ed Slott and Company, LLC Reprinted from The Slott Report, November 25, 2019, with permission.  https://www.irahelp.com/slottreport/cares-act-expands-hsas.     Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

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