How to Use an HSA to Pay Medical Bills
When you’ve got a well being financial savings account however not sufficient cash to cowl your medical bills, you aren’t essentially doomed to insurmountable debt — even if you happen to owe on previous medical payments.
Alexandra Wilson, a Licensed Monetary Planner in Atlanta, used her HSA contributions one yr to cowl medical payments she incurred the earlier yr when she gave delivery 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.
Easy methods to Use an HSA to Pay Off Medical Debt
Cash that you simply put into an HSA is yours to maintain — not like a versatile spending account, which has a use-it-or-lose-it annual requirement.
In case you (or your employer) have contributed to your HSA, you might have some financial savings constructed up. Right here’s how one can know if you should use that cash to repay previous medical debt.
If You At present 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’ll be able to.
Even when your medical debt is in collections, you can also make funds utilizing your HSA card — simply make sure you have the funds for in your HSA to cowl the expense.
Let’s say you’ve been contributing $100 a month to your HSA for one yr. You will have $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’ve gotten in your account. Don’t panic.
You should use 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 following eight months — the excellent news is that almost all healthcare suppliers will comply with fee plans.
With older debt, it won’t be so simple as a swipe of your HSA card, significantly if you happen to initially paid the invoice utilizing a bank card.
You could have to name your HSA supplier and supply receipts to get approval. Assuming you do get approval, you’d basically be reimbursing your self out of your HSA.
You’ll must 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 are usually 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 definately 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 may nonetheless proceed to make use of your HSA — you simply can’t contribute to it whilst you don’t have a excessive deductible well being plan,” Wilson stated.
The HSA annual contribution limits for 2023 are $3,850 for people and $7,750 for household protection.
Meaning you should use financial savings from an previous HSA to pay for this yr’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 eternally and can be utilized to pay for future medical bills. When you flip 65, you should use cash in your HSA for non-medical bills. You’ll pay earnings taxes on the non-medical withdrawals, as you’d with a 401(okay).
Nonetheless, if you happen to depart your present employer or change well being plans, your HSA might cost you a month-to-month administrative charge. Charges fluctuate by plan however are typically $5 per 30 days or much less. They’re often waived in case your HSA stability is above a certain quantity (usually $1,000 to $5,000).
In case 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 might assist maintain you bodily — and fiscally — wholesome for a very long time.
Tiffany Wendeln Connors is deputy editor at The HE.
Rachel Christian, a Licensed Educator in Private Finance and a senior author for The HE, additionally contributed.