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HealthEquity: Discussing The Provisions Of The CARES Act

Jun. 05, 2020 1:46 PM ETHealthEquity, Inc. (HQY)3 Comments


  • CARES act provisions empower HSA accounts, but may negatively impact the custodians.
  • OTC drugs and other previously ineligible items now qualify as HSA eligible.
  • Increased spending of HSA funds affects custodial revenues in the short term.
  • Commuter benefits segment is expected to face challenges during the COVID-19 crisis.

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The Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act, was passed by Congress in order to aid Americans with emergency relief in response to the economic impact caused by COVID-19.

The CARES act includes several provisions that have a major impact on individuals with health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs). I believe these provisions empower HSA accounts and are great for account holders. However, it can have a negative short-term impact on the custodians.

Impact on HSA

Over-the-counter drugs

The CARES Act repeals the prescription requirement for over-the-counter (OTC) drug and medicine reimbursement. OTC drugs include those you can buy off the drugstore, grocery store, or convenience store shelf as well as those dispensed by a physician without a prescription. Due to this, individuals can use tax-free HSA dollars for things like Tylenol, Advil, cough syrup and more. On average, U.S. households spend about $442 annually on OTC products.

The CARES Act adds menstrual care products such as tampons, pads, liners, cups and sponges as qualified medical expenses for HSA reimbursement. A survey was commissioned by INTIMINA and conducted by OnePoll during late 2019. Results revealed the average woman surveyed spends $13.25 a month on menstrual products.

These provisions in the CARES act empower HSA accounts and will encourage individuals to utilize their balance to stock up on the items. Since these items are part of a household annual spend anyway, it only makes sense to use HSA funds (or claim reimbursement) to make these purchases tax free.

I am excited to see empowerment of HSA's during this crisis. It obviously highlights the strength of the platform. However, my concern lies in the fact that, in the short term, this would drain HSA savings and reduce custodial assets for HealthEquity (

This article was written by

Hidden Opportunities profile picture
Venkat holds a master’s degree in electrical engineering from Washington University in St. Louis. He is an expert in identifying attractive business models with strong fundamentals. He is currently a management consultant for one of the largest professional services firms in the world. He enjoys identifying opportunities that are significantly discounted with capability to generate outsized cash flows. Venkat's main focus today is on high-yield, and dividend-growth stocks for current income and long-term capital gains. Hidden Opportunities is a proud part of the High Dividend Opportunities research team, the #1 marketplace for income seekers on Seeking Alpha.

Analyst’s Disclosure: I am/we are long HQY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (3)

Sensible Investing profile picture
Probably one of the best articles on HQY on SA - thank you
FocusMan profile picture
I think you put too little weight on the employer piece. Employers are seeing downward pressure on premiums due to the one-time drop in medical visits, so they are not likely to reduce their share of contributions or change their view of HSAs as low-premium plans post-Covid. HQY is also the most diversified product line after buying WageWorks and is seeing one-third of employers looking into converting their FSAs and HRAs into interest-bearing accounts. The truth is that nobody knows all the variables, but the company guidance is a good estimate.
redarrow5150 profile picture
As long as it was health related, you could use your HSA to buy OTC and I have done it many times.
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