Are Insoles an HSA-Qualified Medical Expense?

A Health Savings Account (HSA) offers a tax-advantaged way for individuals with high-deductible health plans to save and pay for qualified medical expenses. These accounts provide a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for eligible expenses are also tax-free.

Eligibility of Insoles for HSA

Insoles are considered an eligible medical expense only when medically necessary for the diagnosis, cure, mitigation, treatment, or prevention of a specific medical condition, as defined by the Internal Revenue Service (IRS). Insoles purchased for general comfort, athletic performance enhancement, or purely cosmetic reasons do not qualify.

For insoles to be HSA-eligible, a Letter of Medical Necessity (LMN) or a doctor’s prescription is required. An LMN is a detailed document from a physician or other licensed healthcare provider that explains the specific medical condition necessitating the insoles. It should clearly state how the insoles will treat, alleviate, or prevent a medical issue, and may include the duration for which they are needed. Conditions such as plantar fasciitis, diabetes-related foot complications, or various orthopedic problems often require custom or specialized insoles.

The IRS emphasizes that medical necessity must be clearly documented, ensuring the expense directly relates to medical care. Without this documentation, the purchase of insoles may not withstand an audit by the IRS.

The Purchase Process

Once it has been determined that insoles are medically necessary and documentation such as an LMN or prescription has been secured, using HSA funds for the purchase involves specific procedural steps. Account holders typically have two primary methods for utilizing their HSA funds for qualified medical expenses. The most straightforward approach is to use an HSA debit card directly at the point of sale. This method functions much like a regular debit card, allowing for immediate payment for the insoles.

Alternatively, individuals can choose to pay for the insoles out-of-pocket using personal funds and then seek reimbursement from their HSA. This process usually involves submitting a claim to the HSA administrator, which typically requires providing a copy of the purchase receipt and the Letter of Medical Necessity or prescription. Many HSA administrators offer convenient online portals or mobile applications for submitting these reimbursement claims, with the funds then being transferred to the account holder’s personal bank account. It is advisable to consult with the specific HSA administrator to understand any unique submission requirements or preferred documentation formats before initiating a reimbursement request.

Record Keeping

Maintaining accurate and thorough records for all Health Savings Account expenditures is a crucial practice for account holders. These records serve as evidence that withdrawals were made for qualified medical expenses, which is a requirement for the funds to remain tax-free. Key documents to retain include the original purchase receipts for the insoles, the Letter of Medical Necessity or doctor’s prescription, and any Explanation of Benefits (EOB) if the purchase was processed through insurance.

The primary reason for meticulous record keeping is for tax purposes, particularly in the event of an IRS audit. If an audit occurs, account holders must be able to substantiate that all distributions from their HSA were for legitimate medical expenses. While the IRS generally has a three-year statute of limitations for auditing tax returns, it is often recommended to retain HSA records for a longer period, such as seven years, to be fully prepared for any potential inquiry. These records can be kept in physical files, digital scans, or secure cloud storage solutions, ensuring their accessibility and preservation over time.