Can I Buy Baby Formula With an HSA?

Health Savings Accounts (HSAs) offer a tax-advantaged way for individuals to save and pay for qualified medical expenses. These accounts are available to those enrolled in a high-deductible health plan (HDHP) and provide a triple tax advantage: pre-tax contributions, tax-free growth through investments, and tax-free withdrawals for eligible healthcare costs. HSAs empower individuals to manage their healthcare finances, covering a range of services from doctor visits to prescription medications.

Eligibility of Baby Formula

Baby formula is generally not considered an eligible medical expense for Health Savings Account (HSA) reimbursement. The Internal Revenue Service (IRS) typically views baby formula as a food intended for general nutritional needs, rather than a medical expense primarily aimed at alleviating or preventing a physical or mental defect or illness.

However, there are specific circumstances under which baby formula can qualify as an HSA-eligible expense. When a physician prescribes a particular formula to treat a diagnosed medical condition, such as severe allergies, metabolic disorders, or specific nutritional deficiencies, it may be considered eligible. In these cases, the formula must be in addition to the patient’s normal diet and not part of their standard nutritional requirements, as outlined in IRS Rev. Rul. 55-261.

Documenting Medical Necessity

To substantiate the medical necessity of baby formula for HSA eligibility, specific documentation is required. A Letter of Medical Necessity (LMN) explains why a particular expense is medically necessary. This letter must be provided by a licensed healthcare professional, such as a physician.

The LMN should clearly state the diagnosed medical condition that necessitates the specialized formula. It must also specify the exact type of formula prescribed, how it directly treats or alleviates the condition, and the anticipated duration for which the formula will be needed. Retaining the physician’s prescription for the specialized formula is also important to support the claim of medical necessity. This documentation confirms that the expense is for a medical purpose, aligning with IRS guidelines for qualified medical expenses.

Using Your HSA Funds

Once the medical necessity for baby formula has been established and documented, you can proceed with using your HSA funds. You have two primary methods for payment: using an HSA debit card directly at the point of sale or seeking reimbursement for out-of-pocket expenses. If the vendor, such as a pharmacy, accepts HSA debit cards, you can use it like any other payment card.

Alternatively, you can pay for the medically necessary formula out-of-pocket and then submit a claim for reimbursement from your HSA administrator. Regardless of the payment method, retain all receipts, the Letter of Medical Necessity, and the physician’s prescription. These records are important for tax purposes and in the event of a potential IRS audit, as non-qualified withdrawals are subject to income tax and a 20% penalty if you are under age 65.