An HSA or Health Savings Account is a special bank account, much like a 401(k) plan or IRA, set up to help pay for medical expenses on high-deductible insurance plans. The IRS determines who can have an HSA, how it is funded, and how the money in the account is spent. An employer may contribute a certain amount of money to the account and individuals may also contribute money toward the account. The company provides a debit card, usually a Visa or MasterCard, loaded with the HSA funds for accountholders to pay for their eligible expenses. As long as the account is used for qualified expenses, the money spent is tax-free.
Medical expenses such as deductibles and coinsurance payments required under your medical plan qualify as eligible expenses. Look at this scenario as an example: your health insurance plan has a $1,000 deductible for you to meet and your company puts $500 in your HSA account. The $1,000 deductible qualifies as an eligible expense, so you have the option to use the $500 in the HSA to pay part of that deductible. This leaves you with only $500 left to pay out of your pocket. Also, there are some health-related procedures not normally covered under health plans that still qualify as eligible expenses. Some of these services include chiropractic treatment and acupuncture. A spouse or dependent’s bills qualify as eligible, even if they are not covered under your insurance plan.
All out-of-pocket dental expenses are eligible if they are not solely for cosmetic purposes. If you were to need a crown or filling, you can use the HSA to pay for any amount not covered by your dental insurance. Because most dental insurance does not cover braces for adults or many oral surgeries, such as wisdom teeth extraction, these expenses may be paid for using an HSA account.
Out-of-pocket vision expenses such as eye exams, prescription eyeglasses, prescription sunglasses and contacts are eligible HSA expenses. Lasik surgery, which few vision insurance plans cover, also qualifies as an eligible expense.
Prescription drugs are eligible expenses for an HSA; use the debit card to pay for any prescription copays or coinsurances. Along with medical prescriptions, certain over-the-counter medications may also be eligible. Common drugs such as aspirin, antacids and cough syrup are eligible but not all vitamins may be paid for with an HSA account. It is always a good idea to check with your HSA plan before making a purchase you are not sure qualifies as an eligible expense.