Is Cord Blood Banking an HSA-Eligible Expense?
Determine if cord blood banking is an HSA-eligible expense. Gain clarity on IRS regulations and medical necessity criteria.
Health Savings Accounts (HSAs) offer a tax-advantaged way to save and pay for qualified medical expenses. Cord blood banking involves the collection and storage of umbilical cord blood following birth, preserving valuable stem cells for potential future medical applications. Many families considering this option wonder if cord blood banking expenses are eligible for HSA reimbursement. This article clarifies IRS guidelines on this financial and medical intersection.
Understanding HSA-Eligible Expenses
The Internal Revenue Service (IRS) outlines criteria for qualified medical expenses payable with HSA funds. According to IRS Publication 502, medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and expenses affecting any body structure or function. These expenses must primarily serve a medical purpose.
The IRS distinguishes between truly medical expenses and those merely beneficial to general health. For example, costs for general health improvement, such as vitamins or a vacation, are not eligible medical expenses. This definition ensures HSA funds are used for legitimate healthcare needs.
Cord Blood Banking and Medical Necessity
Applying the IRS’s definition, cord blood banking typically does not meet HSA eligibility criteria in most routine situations. For an expense to qualify, it must address an existing or imminently probable medical condition. Private cord blood banking, where blood is stored for potential future use, usually lacks this immediate medical necessity.
At the time of collection and storage, there is often no diagnosed disease or specific medical condition being treated or prevented. The IRS views such banking as a precautionary measure for potential future ailments, not a treatment for a current illness. Without a present medical need, these costs are typically not qualified medical expenses.
Qualifying Costs and Required Documentation
While general cord blood banking is usually not HSA-eligible, specific circumstances can change this. Expenses might qualify if a current or imminent medical condition within the family is treatable by stem cells, such as a diagnosed genetic disorder. This requires a direct link between the banking and a specific, existing health need.
In such cases, a Letter of Medical Necessity (LMN) from a qualified physician is required. This letter must explicitly state the medical condition and explain how cord blood banking serves as a treatment or preventative measure for that specific condition. The LMN provides substantiation to the IRS for the medical necessity of the expense.
If medical necessity is established, certain costs associated with cord blood banking could become eligible. This may include collection fees, processing fees, and annual storage fees, depending on their direct relation to the treatment plan. Eligibility depends on proving direct medical necessity for a current or imminently probable condition, as outlined in the physician’s LMN.