What Are the Eligible Expenses With an HSA?
Perhaps you’ve heard of Health Savings Accounts (also known as HSAs). Perhaps you have one already, but how much do you know about what medical expenses are qualified for payment with funds from an HSA?
This article will examine how an HSA works under Obamacare, why an HSA-eligible Obamacare health insurance plan might benefit you, and what expenses you can pay for with a Health Savings Account.
What is an HSA?
A Health Savings Account is a medical savings account designed for use with qualifying high-deductible Obamacare health insurance plans.
Health Savings Accounts were created by a law in December 2003 signed by President George W. Bush, but they were retained under the Affordable Care Act (“Obamacare”) which was signed into law by President Obama in 2010.
What are the benefits of a HSA?
HSAs provide consumers with special tax advantages when it comes to paying for their medical care. Here’s how:
- When you have an HSA-eligible Obamacare plan you can make deposits into your Health Savings Account on a pre-tax or tax deductible basis, up to the maximum allowed by law per year
- You can then use money in the account to pay for eligible medical expenses
- Money can accrue in your Health Savings Account from year to year and is yours to keep
- However, if you make a withdrawal from the account for something other than the eligible medical expenses, you will have to pay taxes on the money you used, and face a 20% penalty*
Who is eligible to use an HSA?
In order to use an HSA, you must be enrolled in a qualified high-deductible health insurance plan (HDHP). You cannot be enrolled in Medicare, and you cannot be claimed as a dependent on someone else’s 2016 tax return**.
Can HSAs only be used with high-deductible health plans?
You cannot deposit money into a Health Savings Account unless you are currently enrolled in an HSA-eligible high-deductible heath plan. High-deductible health plans combined with a Health Savings Account provide consumers with special tax advantages when it comes to paying for their medical care.
If you decide to cancel your high-deductible health plan, you may no longer make deposits into the account, but you can still use the money to pay for qualified medical expenses.
Be aware that not all health insurance plans with higher deductibles are eligible to pair with an HSA, so do your research carefully or ask a broker or an agent for help. In order to qualify for use with an HSA in 2016, a high-deductible health plan must meet minimum deductible requirements:
- At least $1,300 for individual coverage
- At least $2,600 for family coverage
These are the minimum deductible requirements for 2016 but these figures can change from year to year.
Can Health Savings Accounts be paired with Obamacare plans if I’m getting subsidies?
Yes, and in fact, opening an HSA and depositing money into it can help you qualify for subsidies.
The Affordable Care Act offers premium tax credits to customers who qualify. These subsidies are generally applied toward the monthly premium that you pay for coverage. Those earning no more than 400% of the federal poverty level (about 47,000 for a single person or $97,000 for a family of four in 2016) may be eligible. The dollar value of your subsidy may vary by state and depend on the health coverage offered in your area.
If you qualify for Obamacare premium subsidies (known as “premium tax credits”), you may also want to consider opening a Health Savings Account – if your plan meets the minimum deductible and other requirements. By contributing to an HSA, you may also lower your Modified Adjusted Gross Income (MAGI) which may affect your eligibility for subsidies.Talk with a professional accountant to learn more.
How much can I expect to pay for an HSA-eligible health insurance plan?
The short answer is that the price of your plan will vary between each individual. There is a lot that goes into determining what you pay for your Obamacare health insurance plan. Some of the primary factors include where you live, your age, and whether or not you are eligible to receive subsidies.
How much can you contribute to your HSA per year?
The maximum amount that can be deposited into a Health Savings Account for 2016 is as follows:
- $3,350 for individual coverage
- $6,750 for family coverage
- If you’re age 55 or older, you can deposit an additional $1,000
What are eligible expenses for your HSA account?
You can use money deposited in your Health Savings Account to pay for a broad range of eligible medical expenses. Eligible medical expenses are identified in IRS Publication 502 and include:
- Copayments on your health insurance plan
- Your health insurance plan’s annual deductible
- Coinsurance under your health insurance plan
- Vision care
- Dental care
- Over-the-counter meds
- Ambulance services
- Alcoholism treatment
- Annual physical examinations
- Artificial limb
- Artificial teeth
- Birth control pills
- Body scan
- Braille books and magazines
- Breast pumps and supplies
- Breast reconstruction surgery
- Christian Science practitioner
- Contact lenses
- Diagnostic devices
- Disabled dependent care expenses
- Drug addiction treatment
- Eye exams
- Eye glasses
- Eye surgery
- Fertility enhancement
- Hospital services
- Laboratory fees
- Learning disability treatment
- Organ donors
- Physical examination
- Psychiatric care
- Special education
- Stop-smoking programs
- Weight-loss program
A few surprising eligible expenses you can use HSA funds to pay for include:
- Fertility treatment
- Guide dog or other service animal
- Lead-based paint removal
- Vision correction surgery
What expenses are not eligible for HSA?
Basically, anything not listed in IRS Publication 502. Here are just a few expenses that are not eligible:
- Cosmetic surgery
- Electrolysis or hair removal
- Flexible Spending Account funding
- Medical Savings Account funding
- Medicines and drugs from other countries
- Teeth whitening
- You cannot use HSA dollars to pay premiums for health insurance
A couple final things to remember:
First, using money in your HSA for anything other than qualifying medical expenses will result in the funds used being taxed and assessed a 20% penalty. And remember that HSAs aren’t “use it or lose it” accounts, like many Flexible Spending Accounts. The money deposited into the account is yours to keep and will roll over and can grow from year to year.