MENU

HSA FAQ

Blue Cross and Blue Shield of North Carolina®

View Plans & Apply

Nonqualified medical expenses

Nonqualified medical expenses are expenses not covered by your health plan and/or not specified by the IRS as qualified. Distributions for nonqualified expenses will be taxed as part of your gross income and will incur a 10% penalty.1 After age 65, the 10% penalty is dropped, though the distribution is still treated as taxable income. According to IRS, the following expenses are not qualified HSA expenses:10

  • Archer medical savings accounts 
  • Athletic facilities
  • De Minimis (minimal) benefits
  • Educational assistance
  • Employee discounts
  • Lodging on your business premises
  • Meals
  • Moving expense reimbursements
  • No-additional-cost services
  • Scholarships and fellowships 
  • Transportation (commuting) benefits
  • Tuition reduction
  • Vitamins and dietary supplements
  • Working condition benefits

Generally, health insurance premiums are not qualified medical expenses, except for the following:

  • Qualified long-term care insurance
  • COBRA health care continuation coverage
  • Health care coverage while you are receiving unemployment compensation

If you are over age 65 you may use HSA funds to pay the following premiums:

  • Medicare Part A and/or B
  • Medicare prescription drug coverage (Medicare Part D)
  • Medicare HMO
  • Premiums for employer-sponsored health insurance, or employer-sponsored retiree plan

10Ineligible expenses are defined by IRS Revenue Code Section 213 (d).