Back in 2011 the federal government narrowed the range of “qualified medical expenses” that are eligible for reimbursement under Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs). Over the counter drugs were removed from coverage although co-pays for doctor visits and prescription drugs could be used in HSAs and FSAs. While over-the-counter drugs are now eligible for HSA/FSA coverage, still many other health-related items, such as dietary supplements, weight loss programs, treatments for allergies, and alternative medicines are not reimbursed.

This White Paper finds that a move to expand the HSA and FSA coverage to add more qualified medical expenses to these coverage plans would improve health, and lower health care costs, while costing the Treasury much less in revenue than has been reported by the Congressional Budget Office. This recognition of additional health-related expenses would expand the usage of HSAs and thus reduce overall health care costs. The benefits of broadening the allowable and legitimate health-related expenditures covered by HSAs and FSAs would likely outweigh the costs.