How to Use an HSA to Pay Medical Bills

You probably have a well being financial savings account however not sufficient cash to cowl your medical bills, you aren’t essentially doomed to insurmountable debt — even in the event you owe on previous medical payments.

Alexandra Wilson, a Licensed Monetary Planner in Atlanta, used her HSA contributions one 12 months to cowl medical payments she incurred the earlier 12 months when she gave beginning to her daughter.

She had front-loaded her HSA in anticipation of her daughter’s arrival. However as so many new dad and mom uncover, Wilson ended up making further visits to her pediatrician post-delivery.

As an alternative of racking up debt or digging into her common financial savings, she elevated her HSA contributions and used that cash to repay the payments.

“You’re saving cash since you’re not having to pay taxes on that cash,” Wilson stated.

Wish to know how one can begin paying down previous medical debt along with your HSA? Learn on.

Use an HSA to Pay Off Medical Debt

Cash that you simply put into an HSA is yours to maintain — in contrast to a versatile spending account, which has a use-it-or-lose-it annual requirement.

In the event you (or your employer) have contributed to your HSA, you will have some financial savings constructed up. Right here’s learn how to know if you need to use that cash to repay previous medical debt.

If You Presently Have an HSA

Utilizing your HSA to repay previous medical debt depends upon the reply to 1 query: Did you incur the debt earlier than you arrange your HSA?

If the reply is “sure,” you can’t use the HSA.

If the reply was “no,” you possibly can.

Let’s say you’ve been contributing $100 a month to your HSA for one 12 months. You’ve $1,200 within the account if you break your arm and go to the emergency room.

You find yourself getting a invoice for $2,000, which is $800 greater than you may have in your account. Don’t panic.

You should utilize the $1,200 you’ve already saved to pay a part of your invoice, then use your common $100 contributions to the HSA to make month-to-month funds in your invoice for the subsequent eight months — the excellent news is that the majority healthcare suppliers will conform to fee plans.

With older debt, it won’t be so simple as a swipe of your HSA card, significantly in the event you initially paid the invoice utilizing a bank card.

It’s possible you’ll must name your HSA supplier and supply receipts to get approval. Assuming you do get approval, you’d primarily be reimbursing your self out of your HSA.

You’ll need to report all HSA distributions on tax kind 1099-SA if you file your tax return. However as long as you used the cash for medical bills, these distributions should not taxable.

If You Had an HSA within the Previous

Let’s say you used to work for an employer that supplied you a high-deductible well being care plan and also you added cash to the HSA. Then you definitely acquired a brand new job (or switched plans), and also you signed up for medical insurance that wasn’t excessive deductible. What occurs to your HSA?

“You’ll be able to nonetheless proceed to make use of your HSA — you simply can’t contribute to it when you don’t have a excessive deductible well being plan,” Wilson stated.

Meaning you need to use financial savings from an previous HSA to pay for this 12 months’s medical bills or different previous medical debt, as long as you incurred that expense after you opened the HSA.

And what occurs to the cash you don’t use?

That account is nice ceaselessly and can be utilized to pay for future medical bills. When you flip 65, you need to use cash in your HSA for non-medical bills. You’ll pay earnings taxes on the non-medical withdrawals, as you’ll with a 401(ok).

Nevertheless, in the event you depart your present employer or swap well being plans, your HSA might cost you a month-to-month administrative charge. Charges differ by plan however are typically $5 per thirty days or much less. They’re often waived in case your HSA stability is above a specific amount (usually $1,000 to $5,000).

In the event you meet the plan’s minimal financial savings threshold, you’ll have the choice to speculate the cash in your HSA so the funds in your account can develop.

Which implies that HSA may assist maintain you bodily — and fiscally — wholesome for a very long time.

Tiffany Wendeln Connors is deputy editor at The Penny Hoarder.

Rachel Christian, a Licensed Educator in Private Finance and a senior author for The Penny Hoarder, additionally contributed.