HSA Plans and Accounts

What is an HSA Plan?

A health savings account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the savings account can help pay the Plan deductible. Once this deductible is met, the insurance starts paying. Money left in the savings account can earn interest or may be invested and is yours to keep.

When you have an HSA account…

• Your insurance premium will be lower
• Your deposits (up to a limit) are tax deductible
• Your earnings are tax-deferred or tax-free
• You pay for medically necessary services with pre-tax money
• Your payments against your deductible will be tax-free
• Any leftover money can fund medical costs when you become Medicare eligible.
• You may use the monies in an HSA account to pay for dental and vision services and other medically necessary but uncovered legal medical expenses.

Why High Deductible Health Insurance?

To get the benefits of an HSA, the law requires that the savings account be combined with a qualified high deductible health insurance plan which can cost less than other health insurance plans. In 2021, the minimum annual deductible of a qualified HSA plan for an individual is $1,400 and $2,800 for a family.

A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses.  For many people who need medical services that are not covered by standard ACA Plans, like significant therapies for people with Autism, or other special care situations, this is a great way to end up having to pay significantly less for these kinds of services.

If you have an HSA, you’ve likely heard the word “reimbursement” more times than you can count. But knowing exactly what reimbursements are, and figuring out exactly how the process works, can be downright confusing.

When you want to use your HSA funds to pay for a qualified expense, you have two options of how to go about it. You’ll either be paying for your expenses with funds directly from your HSA or by paying out-of-pocket and reimbursing yourself later.

Paying directly from your HSA

Paying for expenses directly with your HSA funds is often a convenient option, and there are several different payment methods available, depending on personal preference:

Reimbursing yourself later

There may be times when you find that need to pay for an expense out-of-pocket and then reimburse yourself for the associated cost at a later date. For example, you might have to undergo an expensive procedure and not have enough money in your account at the time to cover it. Or you might just be facing multiple expenses in a short period of time.

There may also be times when you decide you’d like to reimburse yourself for an expense you incurred at a previous date that you initially paid for out-of-pocket.

Whatever the case, you’ll need to request reimbursement through your HSA administrator or HSA bank custodian. The specific steps you need to take may vary depending on your administrator, but the reimbursement process is generally quite simple. Typically, reimbursing yourself for out-of-pocket expenses doesn’t require detailed documentation or claim forms, and administrators offer several easy reimbursement methods.

Keep in mind that you can reimburse yourself for any expense at any point, as long as it was incurred after your HSA was established. So if you had an expense that you paid for out-of-pocket last year after your HSA was established, but want to reimburse yourself for it this year, you can do so without penalty.

One of the most important things you can do for yourself during the reimbursement process is keeping detailed records of all of your qualified expenses, regardless of whether you plan on reimbursing yourself for it now or later. Keep dated copies of all bills and receipts. You may even find it helpful to make a spreadsheet to keep track of all of these expenses.

You’ll be reporting your total withdrawals to the IRS every year on a 1099-SA form. So, when you’re doing your taxes you’ll be responsible for reporting all of your reimbursed expenses, qualified or non-qualified. If you’re ever audited by the IRS, you’ll need those receipts to prove that you spent the funds on qualified expenses. The more organized you are, the better off you’ll be.

Remember that if you use your HSA to pay for non-qualified expenses, you’ll be subject to a 20% penalty, as well as any applicable income taxes for the distribution. If you’re over the age of 65, you can withdraw money for non-qualified expenses without fear of the 20% penalty, but the money will still be considered taxable income.