There are two types of health insurance plans: individual plans and family plans. The only difference between them is how many people are on the plan. An individual plan is one individual. They can be married or single; they can have kids or not. It doesn’t matter. If they are on the plan by themselves, it is an individual plan.

The opposite is true of a family plan. A family plan is more than one individual. It can be mom and baby, husband and wife, or even dependent grandma with her son and daughter-in-law — simply having more than one individual on the plan makes it a family plan.

After the Affordable Care Act, children are now always allowed to remain on parent insurance plans until age 26. This means that more and more family plans are actually composed of many different independent people in the eyes of the government.

Thus, for a family of four adults on an HSA eligible plan, it can become tricky figuring out who can spend out of which HSA and how much each person is allowed to contribute.

Luckily, when it comes to spending the IRS answers this question clearly in IRS Publication 969, writing:

Qualified medical expenses are those incurred by the following persons.

1. You and your spouse.
2. All dependents you claim on your tax return.
3. Any person you could have claimed as a dependent on your return except that:
   1. The person filed a joint return,
   2. The person had gross income of $4,050 or more, or
   3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2017 return.

This means that, in general, the people who are on your tax return are allowed to spend out of an HSA that you own. Your adult children are likely independents by now, so that likely means that their expenses cannot be reimbursed by your HSA.

However, if your adult child is on your high deductible, HSA eligible health insurance, then your child can open their own HSA. Every person who is independent in the eyes of the IRS and is on an HSA eligible plan can open their own HSA.

What is more, they can contribute the full amount of their plan type’s maximum . This means that both you and your adult children can fund your Health Savings accounts up to the family contribution limit.

So that family of four can contribute $7,000 to either mom or dad’s HSA (not both), $7,000 to the daughter’s HSA, and $7,000 to the son’s HSA for a total of $21,000 saved to HSA by the people on the plan. Also, anyone can contribute to anyone’s HSA. This means that mom and dad can make all the contributions, it’s just that their children will get the contribution deduction and own the money going forward.

Then, even though you cannot pay for your adult children out of your HSA, they can pay for their own medical bills out of their own HSA.

Also, assuming the expenses you are reimbursing would normally have qualified for your plan’s out of pocket and deductible, then even if you pay out of the HSA it would still count. There are, however, several expenses which are qualified medical expenses according to the HSA rules that may not qualify as counting toward your health insurance deductible. These often include dental expenses, vision exams, contact lenses, or eyeglasses.

That being said, expenses which are reimbursed or paid for via an HSA cannot be included in your tax return’s medical expenses itemized deduction.

When it comes to what does count, the IRS Publication 969 limits HSA qualified expenses largely to those prescribed or performed by a medical professional. They write:

Qualified medical expenses are those expenses that generally would qualify for the medical and dental expenses deduction. These are explained in Pub. 502, Medical and Dental Expenses.

A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug:

1. Requires a prescription,
2. Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or
3. Is insulin.

The rules in the above mentioned IRS Publication 502 are:

What Are Medical Expenses?

Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.

Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

Later, the same publication has an alphabetical list of expenses with guidelines for each one. However in general it is items prescribed by a medical professional.

If you have dependent children, then they cannot open their own HSA even if they are on your plan, but you are allowed to reimburse yourself for their, your spouse, or other tax dependent’s qualified medical expenses out of your HSA even if they are not on your HSA eligible plan.

If you are trying to save money on acquiring an HSA when you have a family of dependent children, you may benefit from reading, “The Cheapest Way to Get a Family HSA (2018).”

Photo by Kevin Delvecchio on Unsplash