When Is Lip Balm an HSA Eligible Expense?

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are tax-advantaged financial tools designed to help individuals pay for qualified medical expenses. These accounts allow users to save or set aside money on a pre-tax basis, reducing their taxable income while providing funds for healthcare costs. Understanding what constitutes an eligible expense is important for maximizing the benefits of these accounts, including clarifying the eligibility of items like lip balm.

HSA and FSA Eligibility Standards

The Internal Revenue Service (IRS) sets the criteria for what qualifies as a medical expense under Internal Revenue Code (IRC) Section 213(d). Generally, an expense must be incurred primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. This definition guides eligibility. Expenses incurred for general health or cosmetic purposes, without a specific medical necessity, are typically not eligible.

Items like dietary supplements for general well-being or cosmetic procedures solely for appearance enhancement usually do not meet the IRS criteria. For some items not obviously medical, a Letter of Medical Necessity (LMN) from a healthcare provider may be required to substantiate their medical purpose. However, many common over-the-counter medications and health products clearly intended for medical treatment or prevention do not require an LMN. Eligibility centers on the product’s primary intended use for a medical condition or preventative care.

Lip Balm Eligibility Criteria

General lip balms, intended for everyday moisturizing or aesthetic improvement, are typically not eligible for reimbursement through HSAs or FSAs. These products are often considered cosmetic or for general comfort rather than for a specific medical purpose. Their use does not fall under the IRS definition of treating, mitigating, or preventing a disease.

However, lip balms designed with specific medical or preventative properties can be eligible. Lip balms containing Sun Protection Factor (SPF) are eligible because they prevent sun damage to the lips, which helps mitigate the risk of skin cancer. Similarly, medicated lip balms used to treat specific conditions, such as cold sores, severely chapped lips or other prescribed ailments, are generally eligible.

The eligibility hinges on the product’s active ingredients and its intended use for treatment or prevention, not merely for comfort or cosmetic enhancement. For example, a lip balm containing active ingredients to treat a fungal infection or a dermatologist-recommended product for chronic chapping would qualify. Consumers should always review the product’s packaging for specific medical claims and consult their plan administrator if unsure about eligibility.

Reimbursing Eligible Expenses

Once an expense is eligible, there are common methods for reimbursement through an HSA or FSA. Many individuals use a dedicated debit card provided by their plan administrator at the point of sale, which directly accesses the funds in their account. This method offers immediate payment for qualified purchases. Alternatively, individuals can pay for the expense out-of-pocket and then submit a claim form to their plan administrator for reimbursement.

Maintaining thorough records is important for reimbursement. This includes retaining itemized receipts that clearly show the date of purchase, the merchant’s name, and a detailed description of the eligible item. These records are crucial for substantiation, as plan administrators may require them to verify eligibility. Furthermore, the Internal Revenue Service (IRS) can audit HSA and FSA accounts, requiring account holders to provide proof that all distributions were for qualified medical expenses.