Can You Pay for Cosmetic Surgery With an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account specifically designed for individuals enrolled in a high-deductible health plan (HDHP). Its primary purpose is to help people save and pay for qualified medical expenses with pre-tax dollars. Funds contributed to an HSA can grow tax-free, and withdrawals for eligible medical costs are also tax-free. This financial tool provides a valuable opportunity to manage healthcare costs effectively.

What Qualifies as an HSA Medical Expense

The Internal Revenue Service (IRS) defines qualified medical expenses as costs incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. Common examples include medical services from physicians, surgeons, and dentists, prescription medications, dental care (like x-rays, fillings, and braces), and vision care (including eye exams and contact lenses).

Qualified expenses also include necessary medical equipment, supplies, diagnostic devices, co-pays, deductibles, and co-insurance amounts. Expenses must primarily serve to alleviate or prevent a physical or mental illness. Those merely beneficial to general health, like vitamins not prescribed for a specific condition, do not qualify.

When Cosmetic Procedures Qualify

Cosmetic surgery is generally not a qualified medical expense for HSA purposes if its sole aim is to improve appearance. The IRS specifies that procedures enhancing appearance without promoting proper bodily function or treating illness are ineligible. This includes purely aesthetic procedures like facelifts or liposuction.

However, exceptions exist when a cosmetic procedure is medically necessary. A procedure may qualify if it alleviates or prevents a specific physical or mental illness or disease, or corrects a deformity from a congenital abnormality, personal injury, or disfiguring disease. For example, reconstructive surgery following a mastectomy due to cancer is an eligible expense. Similarly, surgery to correct disfigurements from an accident or to address a medical condition like severe temporomandibular joint (TMJ) with Botox can qualify. Using HSA funds for non-qualified expenses can result in the distribution being added to your gross income and incurring a 20% tax penalty if you are under age 65.

Using Your HSA for Qualified Procedures

Once a procedure is determined to be a qualified medical expense, using your HSA funds is straightforward. You can typically pay directly from your HSA using an HSA debit card at the point of sale. This card functions like a regular debit card for medical merchants and online healthcare purchases. Alternatively, you can pay for the qualified expense out-of-pocket and then reimburse yourself from your HSA.

Reimbursement can often be done by transferring funds online from your HSA to your personal bank account, or by requesting a check from your HSA provider. There is generally no time limit for reimbursing yourself, provided the expense was incurred after your HSA was established. Maintaining thorough documentation is important for all HSA transactions, especially for procedures that might be questioned. You should keep detailed records, including receipts, invoices, and Explanation of Benefits (EOB) statements from your insurance provider. For medically necessary cosmetic procedures, a doctor’s letter of medical necessity, diagnostic codes, and supporting medical records are essential to substantiate the expense in case of an IRS audit.