Can an HSA Be Used for Dermatology Services?

A Health Savings Account (HSA) provides a tax-advantaged way to save and pay for qualified medical expenses. Individuals typically become eligible to open and contribute to an HSA when enrolled in a High Deductible Health Plan (HDHP). This financial tool allows pre-tax contributions, tax-free growth through investments, and tax-free withdrawals for eligible healthcare costs, offering a triple tax advantage.

What Qualifies as an HSA-Eligible Medical Expense?

The Internal Revenue Service (IRS) defines “qualified medical expenses” for HSA purposes, as outlined in IRS Publication 502. An expense must be primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Expenses that serve a general health purpose, are purely cosmetic, or are not medically necessary do not qualify. If HSA funds are used for non-qualified expenses, the distribution may be subject to income tax and a 20% penalty if the account holder is under age 65.

Applying HSA Eligibility to Dermatology Services

The eligibility of dermatology services for HSA reimbursement hinges on medical necessity. Services aimed at treating a diagnosed medical condition are generally eligible. This includes office visits for dermatological concerns and prescription medications used to address skin diseases.

For instance, treatments for conditions like acne, eczema, psoriasis, and rosacea are HSA-eligible. This also extends to medical procedures such as skin cancer screenings, the removal of moles for medical reasons, or medically necessary biopsies. Even over-the-counter (OTC) acne treatments and certain medicated skincare products became HSA-eligible without a prescription following changes introduced by the CARES Act of 2020. Botox, while often cosmetic, can be HSA-eligible if used to treat a medical condition like chronic migraines or excessive sweating, provided there is clear medical documentation.

Conversely, procedures performed solely to enhance appearance are not HSA-eligible. This includes elective cosmetic procedures such as Botox injections for wrinkles, chemical peels for aesthetic improvement, or laser hair removal when not medically required. Similarly, elective plastic surgery and general cosmetic products that do not treat a specific medical condition are not qualified expenses. The determining factor is always whether the service or product addresses a legitimate medical condition or merely serves a cosmetic purpose.

Documentation and Best Practices for HSA Use

Maintaining thorough records is important when using an HSA for dermatology services. Account holders should retain all receipts, Explanation of Benefits (EOB) statements from their insurance provider, and any documentation from the healthcare provider. This documentation should clearly indicate the medical necessity of the procedure or product. For procedures that could be considered cosmetic, a Letter of Medical Necessity (LMN) from a doctor can be beneficial, detailing why the treatment is medically required rather than purely aesthetic.

Keep these records for at least three years after filing your tax return, as this is the typical period the IRS can audit. Electronic record-keeping, such as scanning receipts and organizing them digitally, is an effective strategy for long-term retention. If there is any uncertainty regarding the eligibility of a specific expense, consulting with the HSA administrator or a tax professional can provide clarity and help ensure compliance.