Everything from co-pays and routine tests to over-the-counter medications can hit your pocket hard. Many individuals choose to open a Health Savings Account (HSA) to help pay for healthcare costs now and in the future. If you’re not sure what you can use a HSA for, read this article and find out what expenses are eligible so you can determine if a HSA is right for you.
What is a HSA?
A Health Savings Account is an interest-earning savings account with a cash value for individuals enrolled in a high-deductible Medical plan. Pre-taxed money can be contributed by you, or an employer. The accumulated funds are used to pay for qualifying out-of-pocket healthcare expenses. HSAs are typically connected to a debit card making it easy to pay for and track eligible expenses.
With a HSA you determine how much to contribute each year within the IRS limits. Withdrawals are tax exempt as long as they are used to pay for qualifying medical expenses. Unused funds in a HSA roll over each year so you don’t have to worry about losing money.
Unused cash balances can be invested in a variety of investment tools to potentially increase returns if you don’t plan to use the money in the short term.
What Is the Difference Between a Health Reimbursement Account and a Health Savings Account?
A HSA, not to be confused with a health reimbursement account, builds a cash balance that belongs to you even if you change employers, the funds can be used to pay for qualifying expenses and invested to grow your returns.
A health reimbursement account is funded by your employer and allows you to get reimbursed for certain out-of-pocket healthcare expenses. Only your employer can contribute to a health reimbursement account. With both types of accounts, money is pre-taxed, lowering your taxable income and withdrawals are tax-free as long as they are used on qualifying expenses.
How Can I Use the Money in My HSA?
Simply stated, the money in your HSA can be used to pay for eligible healthcare, dental and vision expenses for yourself, your spouse, and your dependents.
Now, let’s break it down. Gym memberships, elective procedures, prescriptions, medical equipment and more – are they eligible too?
With a professional medical diagnosis and a physician’s note stating medical necessity, many treatments, tests, products, procedures, medications, and surgeries could be considered eligible. Here’s a list of some of the expenses considered to be eligible and non-eligible.
Eligible expenses (This is not a complete list)
- Medical (exams, check-ups, tests, blood work, scans, other procedures)
- Dental (exams, cleanings, x-rays, fillings, root canals, bridges, braces and guards, dentures, other procedures)
- Vision (exams, eyeglasses, contacts, Lasik, cataract, other procedures)
- Co-pays and deductibles
- Prescriptions (FDA approved & certain over the counter medications)
- Mental health (talk therapy)
- Massage (with Letter of Medical Necessity (LMN))
- Substance abuse treatment (smoking cessation)
- Pre-natal vitamins
- Vaccines (Flu shot)
- Durable medical equipment (with medical diagnosis)
Non-eligible expenses (This is not a complete list)
- Insurance premiums, healthcare, life, disability and others
- Elective and Cosmetic procedures (Botox, teeth whitening)
- Fees (for late or missed appointments)
- Child care (for healthy children)
- Funeral expenses
The list continues to change based on IRS guidelines. This list does not include all possible scenarios. Always refer to your individual plan guidelines, IRS requirements and a trusted, licensed physician for the most up-to-date information on eligible inclusions and exclusions.