What can I pay for with my heath savings account (HSA) funds?
Health Saving Account funds are meant to cover healthcare related expenses. HSAs were designed to provide help to those with high insurance deductibles who are having trouble paying for their expenses. Because those who participate in an HSA program are also enrolled in a High Deductible Health Plan, expenses for routine and other non-emergency care are most often withdrawn from the Health Savings Account.
HSA holders need not notify anyone or fill out any kind of paperwork to make withdrawals from their HSA account. When the money is withdrawn, no taxes are deducted (likewise, no takes were deducted upon depositing the money). All funds are income tax free as long as they are used to cover qualified medical expenses.
The list of qualified medical expenses includes all expenses that fall under the policy holder's deductible amount and coinsurance as well as:
- Dental
- Vision
- Chiropractic care
- Eye glasses
- Hearing aids (and other "durable" medical equipment)
- Over-the-counter medications (there is a qualifying list to consult)
- Transportation expenses related to medical care
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There are several different ways to go about withdrawing money from your HSA account and paying for your medical expenses. Some HSA providers give you a debit card to use just as you would a standard debit card. Other HSAs provide their account holders with checks to use when purchasing products or paying for services. Some HSAs still require their account holders to submit reimbursement paperwork. However your particular HSA allows you to make withdrawals you must keep good records as to the purchases that you are making. Audits are frequently performed and if it is found that you are using your Health Savings Account to make purchases not medically related or not included on the qualifying list, you face serious penalties. The most common is the re-payment of all applicable, and previously pardoned, taxes in addition to an assortment of varying fees (that usually add up to about 10% of the fraudulent funds).
The one exception to the rule that Health Savings Account funds must be used only for qualifying medical expenses is that once a person turns 65 or becomes disabled, the HSA funds can be withdrawn for any reason. However, income taxes will still need to be paid on the funds withdrawn not for medical purposes, you are simply spared the penalty fee. In the case of an account holder's death, the entire amount of the Health Savings Account can be transferred to the listed beneficiary (if the beneficiary is the living spouse) without charge.
Although there are stiff penalties for not using your HSA funds appropriately, there are some advantages to consider. A Health Savings Account never expires. It is not like a Flexible Spending Account that is dissolved at the end of every year. You can keep and roll over all of your saved HSA money year after year. You do not have to hassle with trying to make a guess as to what your medical expenses will add up to in the entire year, nor will you be making a mad rush to spend your remaining money at the end of the year. Your HSA money is there when you need it and kept safe for you when you don't need it.
When you think of all the services that you will be using before you reach your deductible, you know that having tax free money tucked away for you is invaluable. And with the freedom of no expiration dates for your account, you don't have to worry about throwing money away at the end of the year.
