Qualified Medical Expenses

Qualified medical expenses are the expenses that may be paid or reimbursed tax-free from a health savings account, a health flexible spending account, or a health reimbursement arrangement. The starting point is IRC 213(d)(1), which defines medical care as amounts paid "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body," plus transportation primarily for and essential to that care, qualified long-term care services, and insurance covering medical care. That single definition then serves at least three different rules, and each one changes it. The label "qualified medical expenses" is specific to the account rules, coming from IRC 223(d)(2) for health savings accounts, while the itemized deduction in IRC 213(a) speaks of medical care directly. Treating the two as one list is the source of most confusion in this area.

The useful way to hold this is as one definition and four places where the rules built on it diverge.

Divergence one, over-the-counter medicines, and it runs in the direction people least expect. For the deduction, IRC 213(b) is still on the books: "An amount paid during the taxable year for medicine or a drug shall be taken into account under subsection (a) only if such medicine or drug is a prescribed drug or is insulin." Section 213(d)(3) defines a prescribed drug as one requiring a physician's prescription. For account reimbursement, the parallel restriction was repealed by the CARES Act in March 2020, and reading the current statute confirms it: IRC 223(d)(2)(A) contains no prescription requirement, and IRC 106(f), which once carried the restriction for employer plans and FSAs, now deals only with menstrual care products, which the same amendment made reimbursable. So the same bottle of ibuprofen is reimbursable from an HSA or FSA and is not deductible on a return. That one sentence resolves a great deal of contradictory advice.

Divergence two, premiums, and this one runs the other way. For the deduction, insurance is medical care, and 213(d)(1)(D) says so expressly, naming Medicare Part B premiums as an example. For a health savings account, IRC 223(d)(2)(B) is blunt: qualified medical expenses do not include "any payment for insurance." Subparagraph (C) then carves out five exceptions, and the list is worth knowing because each is a real planning situation: coverage during a period of federally required continuation coverage; a qualified long-term care insurance contract; a health plan during a period in which the individual is receiving unemployment compensation; for an account holder who has reached Medicare age, any health insurance other than a Medicare supplemental policy; and a direct primary care service arrangement. The fourth is the one that surprises people at 65: Medicare premiums become payable from an HSA, and a Medigap premium specifically does not.

Divergence three, whose expenses count. For an HSA, IRC 223(d)(2)(A) reaches the account beneficiary, their spouse, and any dependent as defined in section 152 with three modifications, and nothing beyond that. For an employer plan, an FSA, or an HRA, IRC 105(b) reaches the same people and "any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27." So a 25-year-old who is no longer a tax dependent can have their expenses reimbursed from a parent's FSA and cannot have them reimbursed from the parent's HSA, even where the same high-deductible plan covers the child. That asymmetry catches families with adult children on the plan every year.

Divergence four, the floor. IRC 213(a) allows the deduction only for expenses that exceed 7.5 percent of adjusted gross income, and only for a taxpayer who itemizes. Account reimbursement has no floor, no itemizing requirement, and no interaction with the standard deduction. For most households that difference is decisive: the account route is available and the deduction route is not. The deduction's own mechanics belong to itemized deductions rather than here.

Two limits apply identically everywhere, which is what makes them worth noting. Cosmetic procedures are excluded from "medical care" itself by IRC 213(d)(9)(A), unless necessary to ameliorate a deformity arising from a congenital abnormality, an accident or trauma, or a disfiguring disease, with cosmetic surgery defined in (9)(B) as a procedure "directed at improving the patient's appearance" that does not meaningfully promote bodily function or prevent or treat illness. Because that exclusion sits in the definition rather than in one of the rules built on it, it binds the account side and the deduction side alike, which is the opposite of how the over-the-counter rule behaves. Similarly, lodging away from home for medical care counts under 213(d)(2) only where the care is provided by a physician in a licensed hospital or equivalent facility and there is no significant element of personal pleasure, recreation, or vacation, and the amount "shall not exceed $50 for each night for each individual." That $50 is a statutory literal that has never been indexed.

Two smaller points that come up often. Long-term care premiums count as medical care under 213(d)(1)(D), but only up to an eligible long-term care premium amount that 213(d)(10) bands by age and indexes annually, so the current figures belong on IRS.gov rather than on any page. And under 213(d)(5), a child to whom the divorced-parent rules of section 152(e) apply is treated as a dependent of both parents for this section, so either parent's payment of that child's medical costs can qualify.

1. Identify the rule you are under. Reimbursement from an HSA, FSA, or HRA follows one set of modifications; the itemized deduction follows another.

2. Check the expense against IRC 213(d). Diagnosis, cure, mitigation, treatment, or prevention of disease, or affecting a structure or function of the body, plus essential transportation, qualified long-term care services, and insurance.

3. Apply the modification for your rule. Prescription requirement for the deduction only; the insurance bar and its five exceptions for HSAs; the age-27 child for employer plans and FSAs.

4. Confirm nobody else has paid it. An expense reimbursed by insurance or by another party is not yours to claim twice.

5. Keep the records. For an account, the substantiation matters if the distribution is ever questioned; for the deduction, it matters on audit.

A hypothetical, and the point is that one set of facts produces two different answers. Naomi has adjusted gross income of $80,000 and spends $7,200 on medical care in the year, of which $300 is over-the-counter pain relievers and allergy medicine bought without a prescription. On the deduction side, the $300 is excluded by IRC 213(b), leaving $6,900 of qualifying expense. The floor is 7.5 percent of $80,000, which is $6,000. So $6,900 minus $6,000 leaves $900 she could deduct, and only if her total itemized deductions exceed the standard deduction, which for most households they do not. On the account side, all $7,200 including the $300 is reimbursable from a health savings account or a health FSA, with no floor and no itemizing requirement. Same expenses, same taxpayer, two rules, and the difference between $900 of a deduction she probably cannot use and $7,200 of tax-free reimbursement she can.

Pros of paying with an account rather than deducting

• No floor and no itemizing requirement, so the benefit is available to households that will never see the deduction.
• Over-the-counter medicines and menstrual care products are reimbursable, which they are not on a return.
• An FSA or employer plan reaches a child up to age 27 even if the child is not a tax dependent.
• The benefit is immediate rather than waiting for a return to be filed.

Cons and traps

• An HSA generally cannot pay insurance premiums, so the largest recurring health cost most people have is usually outside it.
• Cosmetic procedures are excluded from the definition of medical care itself, so no rule reaches them.
• The age-27 rule applies to FSAs and employer plans but not to HSAs, which quietly disqualifies expenses families assume are covered.
• Long-term care premiums count only up to an age-banded limit that changes every year.
• An expense reimbursed from an account cannot also be deducted, and using an account for a non-qualifying expense creates tax and, before age 65, a penalty.