Can You Use an HSA or FSA to Pay for Home Care?

An HSA can pay for home health aide care, but only when the care meets the tax definition of qualified long term care services. A health FSA cannot: IRS Publication 969 lists amounts paid for long term care among the expenses a health FSA may not reimburse. The HSA test is specific, and most families fail it by accident, because nobody ever wrote the plan of care.

The hours spent on bathing, dressing and transfers are the hours that can qualify. The rest of the visit is treated differently.

Can an HSA pay for a home health aide?

Yes, when the care qualifies. Publication 969 defines qualified medical expenses for an HSA as amounts paid for medical care as defined in Code section 213(d). Qualified long term care services sit inside that definition.

The test is in Publication 502. Qualified long term care services, which include maintenance and personal care services, must be required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner. Two conditions. Both have to be true.

What makes someone a chronically ill individual?

A certification, not an opinion. Publication 502 says an individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified one of the following:

• The individual is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity, or
• The individual requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

The six activities of daily living in the tax rules are eating, toileting, transferring, bathing, dressing and continence. You need two of the six. We walk through what each one means, and why insurers and programs count them the way they do, in ADLs and IADLs: What They Are and Why the Count Matters.

Note the 90 days. It is about how long the need is expected to last, so two weeks of help after a knee replacement usually will not meet this test, even though the help is real and the hours are expensive.

What is the plan of care, and who writes it?

A written plan from a licensed health care practitioner setting out the care the person needs. The primary care office is the usual place to ask. The tax code's term is licensed health care practitioner, which is broader than physician, so ask your accountant who can sign in your situation before you assume only the doctor will do.

Get it dated. Keep it. Without it, the expense fails the test even when the person obviously needs the help, and that is the single most common reason a family spends HSA money on care that does not qualify.

Can a health FSA pay for home care?

No, not for ongoing care. Publication 969 says health FSA distributions must reimburse only qualified medical expenses, then lists what you cannot get FSA money for: amounts paid for health insurance premiums, amounts paid for long term care, and amounts that are covered under another health plan. Ongoing help with bathing, dressing and transfers is long term care.

If you believe your situation is short term and medical rather than long term care, ask your plan administrator in writing before you spend. The administrator applies the plan document, not your reading of the publication, and a denied claim arrives after the money is gone.

One more FSA detail worth knowing. A plan may offer a grace period of up to two and a half months after the plan year, or a carryover of up to $660 of unused amounts, but not both. Anything above the carryover limit is forfeited.

Which hours qualify, and which do not?

The split inside a single visit is the part almost nobody plans for. Publication 502 says nursing services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse, and it names bathing and grooming. It also says you cannot include the cost of household help, even if a doctor recommends it, and that where an attendant provides both personal and household services, the amounts paid must be divided.

So on a three hour visit, the bathing, the dressing, the toileting and the transfers fall on one side of the line. The laundry, the dishes, the vacuuming and the grocery run fall on the other. Ask for an invoice that shows hours and tasks rather than one lump sum, and keep your own note of the split.

Laundry, meals and housekeeping are the hours the IRS treats as household help. Valuable to the family, not deductible.

Can the aide's medical tasks be included too?

Our aides do not perform medical tasks, so the question answers itself. They are trained, background checked and insured, and they are not nurses. They do not administer medication, including insulin, they do not change dressings and they do not make clinical judgments. They can be present while a client manages their own medication, assist if something goes wrong and call for help.

What that means for your account is simple. The qualifying hours are the personal care hours, under a plan of care, for a person who has been certified. Skilled nursing is a separate service and is priced separately.

Can I use my HSA to pay for my parent's care?

Only if the tax rules make their expenses yours. Publication 969 says HSA qualified medical expenses include those incurred by you and your spouse, all dependents you claim on your return, and certain other people who could be claimed as a dependent. Publication 502 lists a father or mother among qualifying relatives and requires that you provided over half of their support for the year.

Half of a parent's support is a real threshold, and most adult children who are paying for a few visits a week are nowhere near it. Have your accountant run the numbers before you spend from the account rather than after.

What happens if I use HSA money for care that does not qualify?

Income tax on the amount, plus an additional 20 percent tax. Publication 969 says there is no additional tax on distributions made after the date you become disabled, reach age 65 or die, but income tax can still apply. A wrong guess on a year of care is an expensive guess.

What records should I keep?

• The dated certification from the licensed health care practitioner.
• The written plan of care.
• Itemized invoices showing the date, the hours and what was done.
• Proof of payment, and your note of the split between personal care hours and household hours.

Our visits are logged in MyCase, the platform we coordinate care on, so the dates and hours are on record and we can show them to you. The HSA administrator usually does not ask for any of this up front. The IRS can ask years later.

Is home care deductible on my tax return instead?

It can be, as part of medical expenses on Schedule A, which you may deduct only to the extent they exceed 7.5 percent of your adjusted gross income. You cannot deduct an expense you already paid with HSA money. For a family with a funded HSA, the account is usually the simpler route, because there is no income floor to clear first.

What does the care cost?

• Home health aide care is $45 an hour, one to eight hours a day. No minimum contract, no assessment fee, and no four hour minimum per visit.
• On a 30 day month: 3 hours twice weekly is about $1,170. Two hours a day is about $2,730. Three hours a day is about $4,095. Four hours a day is about $5,460.
• An overnight is $540 for a twelve hour night, about $16,200 a month if it is every night. Around the clock care is $1,080 a day, about $32,800 a month.

Those figures matter for a second reason. An HSA balance that looks generous against a doctor's bill looks small against a monthly care bill. We break the arithmetic down in Home Care Costs Less Than a Nursing Home Until About 11 Hours a Day.

What should I check before paying out of pocket at all?

Several sources pay before your own savings do. If the person is a MassHealth member, the PCA program may cover personal care hours outright. A veteran or a surviving spouse may qualify for VA Aid and Attendance, covered in VA Aid and Attendance for Home Care in Massachusetts. An old long term care policy may pay once you get past the paperwork, which is the subject of How to Make a Long Term Care Policy Actually Pay for a Home Aide. Your local Aging Services Access Point and Council on Aging are both free to call.

Who do I call?

Care Remedy serves eastern and central Massachusetts from offices in Woburn, Springfield and Brockton. Call 781 957 8076 or email info@careremedyinc.com and we will tell you what the hours cost and give you invoices your administrator can read.

We are a home care agency, not accountants or tax advisors, and nothing here is tax advice. Confirm your own situation with your accountant or tax professional and with your HSA or FSA administrator before you spend, because plan documents and the publications change.