Does HSA Cover Diapers? A Look at Qualified Expenses

A Health Savings Account (HSA) offers a tax-advantaged way to save and pay for healthcare expenses. Understanding what qualifies as an eligible expense for HSA funds is essential for maximizing these accounts’ benefits. This article clarifies the general rules for HSA qualified expenses and addresses whether common items like diapers are covered.

HSA Coverage for Diapers

Diapers are generally not considered a qualified medical expense by the Internal Revenue Service (IRS) and cannot be purchased using HSA funds. The IRS views diapers as a personal hygiene item for general use, rather than primarily for medical care. This applies to infant diapers, as incontinence is considered a normal function for babies.

There are rare exceptions where diapers might be eligible if prescribed by a physician for a specific medical condition, such as incontinence due to an illness or disability in an older child or adult. In such cases, a Letter of Medical Necessity (LMN) from a licensed healthcare provider is required. This letter must detail the specific diagnosis and explain how the diapers are necessary to alleviate the medical condition. Such instances are exceptions and require proper documentation.

Understanding Qualified Medical Expenses

A qualified medical expense refers to costs primarily for the prevention or alleviation of a physical or mental defect or illness. These expenses must be incurred after the HSA is established and generally include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. The IRS provides guidance on these expenses in Publication 502, “Medical and Dental Expenses.”

Common qualified medical expenses include doctor visits, prescription medications, dental care, vision care, diagnostic tests, hospital services, and certain medical equipment. The definition also includes over-the-counter medications and menstrual care products. However, items for general health, such as toiletries or elective cosmetic procedures, are not eligible.

Using Your HSA for Eligible Expenses

Once an expense is identified as qualified, there are several methods for using HSA funds. A common method is to use a dedicated HSA debit card directly at the point of sale, similar to a regular bank card. Many HSA providers also offer online payment options, allowing account holders to pay medical bills directly through their HSA portal.

Alternatively, individuals can pay for qualified medical expenses out-of-pocket and then reimburse themselves from their HSA. This approach allows HSA funds to continue growing tax-free until needed. Funds can be transferred electronically from the HSA to a personal bank account, or a check can be written from the HSA. The expense must have been incurred after the HSA was established for the reimbursement to be tax-free.

Maintaining HSA Records

Maintaining thorough records for all HSA transactions is important for compliance. The IRS requires account holders to keep documentation to demonstrate that distributions were for qualified medical expenses. These records should also show that the expenses were not reimbursed from another source and were not taken as an itemized deduction on a tax return.

Essential documents to retain include receipts, invoices, and Explanation of Benefits (EOB) statements from insurance providers. If a Letter of Medical Necessity was obtained for a specific expense, that document should also be kept. These records are crucial in case of an IRS audit, as the burden of proof for qualified expenses rests with the HSA holder. While electronic records are permissible, they should be managed with the same diligence as physical copies.