Can I Pay My Prescription Copay From My HSA?

A health savings account, or HSA, provides a tax break to account holders with qualifying high-deductible health insurance policies. Money contributed to the account is tax-free and remains tax-free as long as the account holder uses it to pay for qualifying medical expenses, according to the guidelines set forth by the federal government.

Copays

• You may use the funds in your health savings account to pay for all of your patient share responsibilities outlined in your health insurance plan. For example, if you have a plan that pays for physician office visits, but requires you to pay a $30 copay, you can write a check for the $30 tax-free from your health savings account. Likewise, you can use your HSA to pay for other patient share responsibilities such as coinsurance and deductibles.

Services and Care

• The federal government allows high-deductible health insurance policyholders to pay for most medical expenses for themselves, a spouse and tax-deductible dependents from an HSA. The IRS defines qualifying expenses in Publication 502, and they include routine inpatient and outpatient procedures, diagnostic testing, prescription drugs, family planning expenses, emergency care, dental expenses, optometry, corrective eye treatments and nursing services. Furthermore, you can also pay for pregnancy test kits, expenses for guide dogs, acupuncture and wigs for a patient who loses her hair due to a disease.

Exclusions

• Despite the vast number of expenses eligible for payment via HSA, there are some medical expenses you may not pay for tax-free. These include cosmetic surgeries, tattoos, gold teeth and your monthly health insurance premiums. Additionally, beginning in 2011, the IRS no longer recognizes over-the-counter drugs and medications, such as painkillers and cough syrups, as HSA-qualified expenses. Insulin is the only exception to this rule.

Taxes

• Anyone can make a cash HSA contribution to his own health savings account or to another account on the behalf of another person. The IRS places limits on the amount of contributions made to an account in a single year. The limits change from year to year and depend on your age and the number of people on your health insurance policy. For 2010, you may contribute up to $3,050 for an individual HSA, or $6,150 for a family HSA.

Eligibility

• To open a health savings account, you must meet eligibility guidelines outlined by the IRS in Publication 969. Your only health insurance coverage must be a high deductible health plan, or HDHP. An HDHP is any health insurance plan with a family annual deductible of $2,400 or more, or an annual deductible of $1,200 or more for an individual with a single coverage plan. You cannot qualify if someone else claims you as a dependent on federal income taxes or if you are enrolled in Medicare.