What You Need to Know about the CARES Act and your Health Savings Account | Lord Abbett
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Retirement Perspectives

New provisions in the act include coverage for expenses for telehealth and over-the-counter medications.

Read time: 2 minutes

The $2 trillion federal stimulus bill—Coronavirus Aid, Relief, and Economic Security (CARES) Act— includes new provisions for retirement accounts, as well as provisions that impact tax-advantaged Health Savings Accounts (HSAs). The act offers HSA owners expanded access to certain medical services without first satisfying their annual deductible and enables expanded tax-free distributions.

The basic framework of an HSA offers a person the option of contributing pretax income to cover either current and or future medical expenses for medical expenses not otherwise covered by health insurance. HSAs are triple tax-advantaged; contributions are tax deductible, distributions (of contributions) are tax free, and earnings are also distributed tax free as long as the proceeds are used to cover “qualified medical expenses.” However, HSA eligibility requires a person to be enrolled in a high deductible health plan (HDHP). Importantly, one important requirement for a HDHP to be HSA eligible (not all HDHPs are eligible to be paired with an HSA) is generally no benefits can be paid prior to the annual deductible being satisfied unless treatment is considered preventative.


The CARES Act relaxes the rules for satisfying your annual deductible prior to HDHP policy paying benefits for telehealth and other remote care services. In other words, the CARES Act creates a temporary exception, thus permitting HDHP to cover telehealth services prior to satisfying your deductible and still be considered a HDHP for HSA purposes. This provision is temporary, and without additional Congressional action is due to expire on December 31, 2021.

Qualified Medical Expenses Expanded

One of the many HSA benefits is distributions used to pay for “qualified medical expenses (QMEs)” are tax-free. However, the enactment of the Patient Protection and Affordable Care Act in 2010 removed over-the-counter (OTC) medicines as a qualified medical expense unless the medicine was prescribed by a physician. The CARES Act eliminates this restriction—permanently. Therefore, distributions from an HSA that are designated QMEs are no longer limited only to those medicines that are prescribed by a physician. This means that you can take a tax-free distribution from your HSA for OTC medicines (i.e aspirin, allergy and cough medicine, etc.) incurred after December 31, 2019. Additionally the CARES expands the definition of QMEs to include amounts paid for menstrual care products and  those items  needed in quarantine and social distancing.  It’s important to note the expanded access to tax free distributions apply retroactively.  Therefore, it’s critical you retain or have a method of getting receipts for both newly eligible expenses or expenses as of January 1, 2020, can be submitted to be reimbursed. 

Tip! The CARES Acts also expanded the definition of QMEs for Flexible Spending Accounts (FSAs) to include over-the-counter medications. The IRS, in Notice 20-2023, stated that HSA participants will now have until July 15, 2020 to make contributions to their HSAs for tax year 2019.

The IRS, in Revenue Procedure 2020-32, announced that for calendar year 2021, the contribution limit for an individual with self-only coverage under a high deductible health plan (HDHP) is $3,600, up $50 from the 2020 limits, and for an individual with family coverage under a HDHP is $7,200, an increase of $100 from the 2020 limits. 

For calendar year 2021, the IRS defines a HDHP as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage. These minimum annual deductible levels are unchanged from the 2020 levels. 

In addition, annual out-of-pocket expenses for calendar year 2021 under an HDHP are limited to $7,000 for self-only coverage and $14,000 for family coverage. These levels are up $100 and $200, respectively, from the 2020 limits.

To learn more about the benefits of HSAs, visit our resource center.

If you have additional questions, please contact your Lord Abbett representative at 888-522-2388.


To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

A Health Savings Account (HSA) is a savings account that lets employees set aside money on a pretax basis to pay for qualified medical expenses.

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