Health Care Needs Covered by Your Health Savings Account:

Now that you have set-up your health savings account, you are free to begin using it for your health care needs. It is important to understand what you will be allowed to use your account for, tax-free, and what purchases will be subject to income tax. First, you will need to understand what your HSA deems as qualified medical expenses.

Qualified Medical Expenses

In order for your purchases to be made tax-free, they must be considered as a "qualified medical expense." The definition currently in use for these expenses is set down by the Internal Revenue Service in their Publication #502, which can be viewed at www.irs.com. This document contains a list of the different expenses which will be covered and a summarization of what is not covered.

If you are in doubt if something will be considered a qualified medical expense, it is important to ask your HSA administrator ahead of time. They will be able to advise you on your planned purchase before you are subject to income tax and a 10% penalty fee.

Let's take a look at some of the different health care needs that will be covered by your new health savings account.

Insurance Premiums

Your HSA allows you to pay on your health insurance premiums with the funds in your health savings account, so long as the insurance policy is an HSA eligible plan. This means that the insurance policy must have a deductible that is greater than $1000 and it may not have a co-pay. The ability to pay for your premiums with tax-free income is one of the most popular attributes of a health savings account.

Doctor Visits and Procedures

If your doctor requires pre-payment for services, you can use your health savings account to make a payment, tax-free, until you can be reimbursed by your insurance company. In addition, if your insurance company does not provide coverage for a particular service, but it is still considered a qualified medical expense, you will be allowed to use your health savings account for this purchase. In the event that a procedure or treatment is not considered as a qualified medical expense, you can still use your HSA to make payment, but your purchase will be subject to income tax and a 10% penalty fee.

Prescription Drugs

You are free to use your HSA to purchase prescription drugs, tax-free. There has been some confusion regarding prescription co-pay plans being eligible for an HSA since they were instituted. This is due to the fact that co-pay insurance plans are not considered to be eligible for an HSA. However, if your co-pay prescription coverage has been added on to your current policy as a benefit rider, it should be eligible. You will need to check with your HSA administrator for more information.

Long-Term Care

You can pay for your long-term care needs with your health savings account. This is a relief for many people who are concerned about the ability of Medicare to handle long-term care options. Since the money that you keep and earn in your health savings account rolls over each year, this means that you can use your HSA as a buffer, should you need long-term care in the future. The ability to earn interest on this money, tax-free, makes it a great alternative to a traditional savings account that would be used for this purpose.

Dental and Vision Care

You will be able to use your health savings account for your dental and vision care needs. Often, it is difficult to find an insurance policy that will offer coverage in these areas, necessitating additional riders or policies. Dental insurance can be limiting in coverage, and purchasing a vision care plan may be overkill if you do not frequently need vision checkups.

The ability to use your HSA for these needs gives you more options. If you do not want to purchase additional insurance, you can use your HSA to pay for these expenditures, tax free, or you can use your HSA to pay the premiums for these additional insurance policies if necessary.

As health savings accounts mature, new regulations and guidelines will be formed. It is important to stay on top of these changes to make sure that you are getting the most out of your HSA. Your health savings account administrator will be able to assist you in finding out about these changes and how it will affect your account.

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