Can I use HSA dollars to pay for adult child medical care?

Our very own Carrie Mclean was recently interviewed by Michelle Andrews for a story on Health Savings Accounts (HSAs) for the NPR Shots blog. The story hits on a little-known discrepancy between the laws governing HSAs and the health reform law – one that can have financial consequences for some consumers.

Andrews writes that “even though the Affordable Care Act allows parents to keep their adult children on their policies until they reach age 26, they can’t use funds from their HSA to pay for the child’s care after age 24.”

What’s this all about?

Well, the Affordable Care Act allows parents to keep adult children enrolled on the family health insurance plan until age 26, and this is true even if the adult child is no longer a student, doesn’t live at home, and is not financially dependent on his or her parents.

The rules governing HSAs, however, only allow pre-tax or tax-deductible dollars saved in an Health Savings Account to be used to pay for the medical bills of people on the policy who are dependents as defined by the IRS.

In other words, if you can’t claim your adult child as a dependent on your federal tax return, you cannot use HSA dollars to pay for their copayments, deductibles, or other qualifying medical expenses.

Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.

Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.

Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.

Support — did not provide more than one-half of his/her own support for the year.

If you have an adult child covered under your family’s HSA-eligible health plan and these criteria aren’t met, then you cannot use funds from your HSA to pay for his or her medical expenses.

Now, this doesn’t mean that HSA-eligible health plans are never a good choice for people with adult children. If the adult child has no other health insurance alternatives, an HSA-eligible plan will still provide them with valuable coverage. But if you’re currently considering an HSA-eligible plan for your family, it’s good to know about any possible limitations to your coverage.

What Next?

Related Articles