I purchased a drug in country A, and consumed it in country B; neither A nor B is the US; is that a qualified medical expense from the HSA standpoint?

Question

I am a US citizen. I have an HSA account. I purchased a drug in country A, and consumed it in country B, where neither A nor B is the US. Is that a qualified medical expense from the HSA standpoint?

I read on https://www.irs.gov/publications/p969/ar02.html#en_US_2016_publink1000204020:

Qualified medical expenses. 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.

And https://www.irs.gov/pub/irs-pdf/p502.pdf (Page 16):

Medicines and Drugs From Other Countries

In general, you can't include in your medical expenses the cost of a prescribed drug brought in (or ordered shipped) from another country. You can only include the cost of a drug that was imported legally. For example, you can include the cost of a prescribed drug the Food and Drug Administration announces can be legally imported by individuals.

You can include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States.

That doesn't cover my case, since I haven't imported the drug to the US, and I have consumed the drug in a different country from where I bought it.

Answer 1

In general, yes, you can use HSA funds to pay for medical treatments that happen outside the U.S., including drugs.

The specific rules you are looking at address two circumstances. First, drugs can cost very different amounts in different countries (for reasons that are unimportant for this discussion). For example, drugs purchased in Canada are often less expensive than those in the U.S. The government wants to discourage going to Canada to purchase medicines and "smuggling" them across the border into the U.S. for consumption there. So they don't allow that deduction, unless the FDA has specifically said that you can do this for a certain drug. This doesn't apply to you, as you haven't brought them into the U.S., and they don't care if it went across someone else's border.

Second, they want to make sure that you aren't using a tax deduction to pay for illegal drugs. But if the drug in question was legally purchased in the other country and is not considered an illegal drug by the U.S., you have no problem here, either.

Remember that over-the-counter (non-prescription) drugs are not able to be paid for with HSA funds. So this purchase is only a qualified medical expense if it was prescribed by a medical professional.