January 7, 2009

What can you use a Health Savings Account for?

Our medical plan uses a Health Savings Account (HSA). With the HSA we put money pre-tax into the HSA and then we can use those funds later to pay for qualified medical expenses. So it effectively makes our medical expenses tax free. This is a great benefit if you have higher tax bracket and some medical fees. Plus you can hold onto the HSA account funds as long as you want to use for medical expenses in later years. I plan to maximize our HSA contribution for the year which will leave extra money in the account to be used for future medical expenses. In order to plan for exactly how much of a balance I want to accumulate in the HSA I'll need to know what all I can use that money for.

What can you use an HSA to pay for?

The Dept. of Treasury HSA guide says:

"You can use the money in the account to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, and dental and vision care, and also includes over-the counter drugs such as aspirin. You can generally not use the money to pay for medical insurance premiums, except under specific circumstances, including:
• Any health plan coverage while receiving federal or state unemployment benefits.
• COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
• Qualified long-term care insurance.
• Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for:
Part A (hospital and inpatient services)
Part B (physician and outpatient services)
Part C (Medicare HMO and PPO plans)
Part D (prescription drugs)
You can use the money in the account to pay for medical expenses of yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and dependent children even if they are not covered by your HDHP."

So that answer boils down to:

You can use an HSA to pay for qualified medical expenses as defined by the IRS excluding health insurance premiums except for insurance when you are unemployed or medicare related costs.

Thats your basic answer. Also note that the guide says specifically that you CAN use your HSA funds to pay for over the counter drugs such as aspirin.

What is and isn't a qualified medical expense is a document in itself. Refer to the IRS publication 502 : qualified medical expenses for the full details on what is or isn't allowed. For the most part the list of qualified medical expenses are what you'd figure are legitimate medical expenses. Things like doctor bills, hospital stays, drug prescriptions, dental visits, eyeglasses and so forth. The list of what is not covered is not too long and includes stuff like purely elective cosmetic surgery, maternity clothing, swimming lessons, vet bills and other things that are not really normal medical costs.

Here is another page that list HSA qualified expenses.

Normal expected items that HSAs CAN be used for are listed below. Some of these may need to be prescribed by a physician and there may be exclusions within each category:

Contact Lenses
Dental Fees
Diagnostic Fees
Doctor's Fees
Eyeglasses and Examination Fees
Hearing Aids
Hospital Care
Laboratory Fees
Operations - legal
Oxygen / Oxygen Equipment
Psychiatric Care
Surgical Fees
Therapy Treatments
Stop smoking programs

Some interesting items that HSA can be used for:

Braces / orthodontia
Laser eye surgery
Over the counter medication
Medicare A,B,C,D

I list these out as interesting items since they are areas out of the normal medical costs that I may use the HSA funds to cover.

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