USING YOUR HSA
Synopsis by Dave Ballard Insurance
Does an HSA pay for the same things that regular
insurance pays for?
HSA funds can pay for any “qualified medical expense”, even if the
expense is not covered by your HDHP. For example, most health insurance does
not cover the cost of over-the-counter medicines, but HSAs can. If the
money from the HSA is used for qualified medical expenses, then the money spent
is tax-free.
How do I know what is included as “qualified
medical expenses”?
Unfortunately, we cannot provide a definitive list of “qualified
medical expenses”. A partial list is provided in
IRS Pub 502 (available at www.irs.gov).
There have been thousands of cases involving the many nuances of
what constitutes "medical care" for purposes of section
213(d) of the Internal Revenue Code. A determination of whether
an expense is for "medical care" is based on all the
relevant facts and circumstances. To be an expense for medical care,
the expense has to be primarily for the prevention or alleviation
of a physical or mental defect or illness. The determination often
hangs on the word "primarily."
Who decides whether the money I’m spending
from my HSA is for a “qualified medical expense?”
You are responsible for that decision,
and therefore should familiarize yourself with what qualified medical
expenses are (as partially defined in IRS Publication 502) and also
keep your receipts in case you need to defend your expenditures
or decisions during an audit.
What happens if I don’t use the money in
the HSA for medical expenses?
If the money is used for other than qualified
medical expenses, the expenditure will be taxed and, for individuals
who are not disabled or over age 65, subject to a 10% tax penalty.
Are dental and vision care qualified medical expenses
under a Health Savings Account?
Yes, as long as these are deductible
under the current rules. For example, cosmetic procedures, like
cosmetic dentistry, would not be considered qualified medical expenses.
Can I use the money in my HSA to pay for medical
care for a family member?
Yes, you may withdraw funds to pay for
the qualified medical expenses of yourself, your spouse or a dependent
without tax penalty. This is one of the great advantages of
HSAs.
Can I use my HSA to pay for medical services provided
in other countries?
Yes.
Can I pay my health insurance premiums with an
HSA?
You can only use your HSA to pay health
insurance premiums if you are collecting Federal or State unemployment
benefits, or you have COBRA continuation coverage through a former
employer.
Can I purchase long-term care insurance with money
from my HSA?
Yes, if you have tax-qualified long-term
care insurance. However, the amount considered a qualified
medical expense depends on your age. See IRS Publication 502
for the amounts deductable by age.
I have an HSA but no longer have HDHP coverage.
Can I still use the money that is already in the HSA for medical
expenses tax-free?
Once funds are deposited into the HSA,
the account can be used to pay for qualified medical expenses tax-free,
even if you no longer have HDHP coverage. The funds in your
account roll over automatically each year and remain indefinitely
until used. There is no time limit on using the funds.
What happens to the money in my HSA if I lose my
HDHP coverage?
Funds deposited into your HSA remain
in your account and automatically roll over from one year to the
next. You may continue to use the HSA funds for qualified
medical expenses. You are no longer eligible to contribute
to an HSA for months that you are not an eligible individual because
you are not covered by an HDHP. If you have coverage by an
HDHP for less than a year, the annual maximum contribution is reduced;
if you made a contribution to your HSA for the year based on a full
year’s coverage by the HDHP, you will need to withdraw some
of the contribution to avoid the tax on excess HSA contributions. If
you regain HDHP coverage at a later date, you can begin making contributions
to your HSA again.
Do unused funds in a Health Savings Account roll
over year after year?
Yes, the unused balance in a Health Savings
Account automatically rolls over year after year. You won’t
lose your money if you don’t spend it within the year.
What happens to the money in a Health Savings Account
after you turn age 65?
You can continue to use your account
tax-free for out-of-pocket health expenses. When you enroll
in Medicare, you can use your account to pay Medicare premiums,
deductibles, copays, and coinsurance under any part of Medicare. If
you have retiree health benefits through your former employer, you
can also use your account to pay for your share of retiree medical
insurance premiums. The one expense you cannot use your account
for is to purchase a Medicare supplemental insurance or “Medigap” policy.
Once you turn age 65, you can also use your account to pay for
things other than medical expenses. If used for other expenses,
the amount withdrawn will be taxable as income but will not be subject
to any other penalties. Individuals under age 65 who use their
accounts for non-medical expenses must pay income tax and a 10%
penalty on the amount withdrawn.
Can I use my HSA to pay for medical expenses incurred
before I set up my account?
No. You cannot reimburse qualified medical expenses incurred
before your account is established. We recommend you establish
your account as soon as possible.
Who will be the “bookkeeper” for my
HSA?
It is your responsibility to keep track
of your deposits and expenditures and keep all of your receipts.
If you run out of HSA funds (and therefore need to use your HDHP),
you may need to send those receipts to your insurer..
How do I use my HSA to pay my physician when I’m
at the physician’s office?
If you are still covered by your HDHP
and have not met your policy deductible, you will be responsible
for 100% of the amount agreed to be paid by your insurance policy
to the physician. Your physician may ask you to pay for the
services provided before you leave the office. If your HSA
custodian has provided you with a checkbook or debit card, you can
pay your physician directly from the account. If the custodian
does not offer these features, you can pay the physician with your
own money and reimburse yourself for the expense from the account
after your visit.
If your physician does not ask for payment at the time of service,
the physician will probably submit a claim to your insurance company,
and the insurance company will apply any discounts based on their
contract with the physician. You should then receive an "Explanation
of Benefits" from your insurance plan stating how much the
negotiated payment amount is, and that you are responsible for 100%
of this negotiated amount. If you have not already made any
payment to the physician for the services provided, the physician
may then send you a bill for payment.
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