How to get reimbursed for HSA expenses

Paying out of pocket with a Health Savings Account has advantages, but it can be tricky

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
I have a health savings account (HSA), in connection with a high-deductible health plan. I incurred a medical expense that costs more than the balance of the account and will have to pay for it out of pocket to keep the bill current. Can I pay myself back from the HSA account when I am able to replenish the account? The account comes with a debit card, not a checkbook, so what is the proper way to do this? – Heather

Answer Dear Heather,
It’s smart to open an HSA if you have a high-deductible plan, as many small-business owners do, because the money in that account can be used to pay your medical expenses with pretax money. If you have an individual plan, the maximum you can put into it for 2017 is $3,400. For a family, it’s $6,750. By using pretax money to pay your medical bills, you can make your health care dollars go further.

And if you don’t spend all of the money in the account, you can invest it. Unfortunately, health care costs are high and even if you are fully funding the account, there may be times during the year when you run out of money to cover expenses. Some medical tests and treatments are so expensive that if you must pay for them in full before you meet the deductible, they can quickly eat up all of the money in the account – and even exceed it. Or you may have several unexpected medical and dental expenses at the same time.

When that happens, it is fine to pay the bill and then reimburse yourself from the HSA account later – and even in a future year, according to John W. Seltzer, CEO of J. Seltzer Associates, an employee benefits advisory firm that works with small and midsized employers.

“You are permitted to reimburse yourself for qualified medical expenses from an HSA account as long as the expenses were incurred after the HSA account was established,” Seltzer said in an email. “There is no time limit on when you can reimburse yourself for these expenses.”

However, it is very important that you keep accurate records to document the transactions, in case you are ever audited. The first step is to keep a copy of every medical bill you have personally paid and of the payments. “As long as the dates are on the receipts, you should be fine,” says Seltzer.

Reimbursing yourself in a way that enables you to keep good records can be a little tricky if you have only a debit card.

“The preferred method is to have a check (or ACH transfer) sent to the HSA holder and this can be done online from the HSA custodian,” said Ben Westerman, a CPA and a senior vice president at HM Capital Management, a fee-only investment advisory firm in St. Louis, in an email. “If this is not an option, then withdrawing funds from an ATM is an option.”

Just be sure to keep the records of the transaction somewhere you can find them in case you ever need them.

See related: Can a medical facility put a hold on your card?, 15 tips for paying high medical bills

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Updated: 11-19-2017