You Can Use Your HSA for That? Helping Employees Understand How HSAs Work

Employees who do not have dental insurance may be surprised to hear that an HSA will cover almost every part of dental care. That same IRS publication names nearly every kind of dental care except tooth whitening.

As open enrollment time for health care plans comes around again, employees may be confused about the role that a health savings account or HSA can play in both their retirement and their health care spending. In fact they may be surprised at some of ways they can use an HSA.  

First, and maybe most importantly, an HSA is a savings account that allows employees to set aside money from their paychecks before taxes are applied. The twist with an HSA which sets it aside from other health care savings plans, is that the money can be invested in funds that bear interest and amounts that remain in the account can be rolled over from one year to the next, so long as certain requirements are met. While there is a limit on the maximum that can be contributed to an HSA, ($3,400 for an individual, $6,750 for a family), it is still helpful option for many. This means a family can set aside an additional $6,000 for health care costs that can grow at the same rate as retirement accounts, with no tax on money going into our out of the account (so long as the expenses are eligible ones).

Many employees may confuse the HSA with the flexible spending account or FSA. The latter is also a specialized savings account with favorable tax treatment, yet unlike the HSA, funds in an FSA cannot be rolled over to the next year. However, in order to qualify for an HSA, an employee must be enrolled in a health care plan with a “high deductible.” What qualifies as a high deductible can change from year to year.

Second, most employees may not know the range of services and goods that count as qualified expenses. For those with chronic conditions, they may know that supplies, like blood sugar testing kits for diabetics, are covered. What the average employee may not know is that co-pays and doctor visits are also covered. Some expenses that are often not covered by insurance, such as in vitro fertilization and other fertilization costs, are also eligible costs. This includes drug addiction treatment and in-patient alcoholism treatment. In addition the IRS will allow funds to be withdrawn for use by family members. HSAs can also be used to cover costs of long term care insurance, including the initial fees and the monthly payments.

Third, for employees with children who now need, or may need in the future, specialized care, an HSA can be of tremendous help with costs that might not seem obvious. For example, eligible expenses can include the cost of education. As the IRS publication 502 states “You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. “

Additionally, employees who do not have dental insurance may be surprised to hear that an HSA will cover almost every part of dental care. That same IRS publication names nearly every kind of dental care except tooth whitening. “You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. Treatment to alleviate dental disease includes services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailment.”

Employees may benefit from having a list of common HSA eligible expenses at the same time as they consider their health plan options.  Plan sponsors may also want to host an HSA specific question and answer session with their company’s financial advisor.

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