A health savings account (HSA) is a special savings plan available to certain individuals with high-deductible health insurance plans (HDHPs.). According to the IRS, a health insurance plan must have a minimum annual deductible of $1,200 for single coverage and $2,400 for family coverage to qualify for an HSA. Those eligible for HSAs may commit funds to their accounts on a pretax basis and use savings for a variety of health expenses.
Common Medical Care Costs
Savers can use the funds in health savings accounts to pay for a variety of common medical care costs. You use an HSA to pay for most common type of medical care that is normally covered by health insurance plans, such as routine doctor's visits, preventive care and surgery. According to the IRS, in general, any health expense that qualifies as tax deduction is also a qualifying expense for HSAs. Wells Fargo states that ambulance costs, dental costs and nursing home costs are qualified expenses.
Shared Costs
Health insurance plans often include cost sharing between the insurance company and the policyholder. You must pay your deductible before the insurance company will cover health care costs, and even after the deductible you may have to pay copay (flat fees) on certain types of care or coinsurance (a percentage of the total cost of care.). The Mayo Clinic says that HSA funds can go toward deductibles, copay and coinsurance costs.
Other Qualifying Expenses
There are many less common medical expenses that qualify for HSA funds. According to Wells Fargo, expenses including acupuncture, artificial limbs or prosthesis, contact lenses, hearing aids and hearing aid batteries and prescription medicines are qualified HSA expenses. Certain over-the-counter drugs such as sleep aids and cold medicine may qualify for HSA with a prescription from a doctor.
Non-Qualified Uses
HSAs can be used to pay for qualifying medical expenses tax free, but account-holders may also withdraw funds for non-qualified expenses if they desire. Wells Fargo states that if you use an HSA on non-qualifying expenses, you will incur a 20 percent penalty (the penalty was 10 percent before Jan. 1, 2011) and you will have to pay income tax on the funds. If you are older than 65, you are not subject to the 20 percent penalty.
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