Uses for Health Savings Account Funds

Individuals who have a high-deductible health plan or who have no health insurance coverage at all can elect to open a health savings account to save for future medical and dental expenses. Some employers establish relationships with HSA trustees to offer HSA accounts to employees either in place of insurance or in combination with a high-deductible health plan. You withdraw funds from the HSA to pay qualified medical and dental expenses as you incur them.

What Are Qualified Medical Expenses?

• Although the HSA account came into existence as part of Medicare legislation passed in 2003, the definition of qualified medical and dental expenses is maintained by the Internal Revenue Service. Essentially, the same expenses that you are allowed to deduct as itemized deductions on a Schedule A are considered qualified medical and dental expenses for withdrawal from your HSA. HSAs also allow reimbursement for over-the-counter medications other than just insulin. You withdraw reimbursement from your HSA for your own qualified expenses as well as those for your spouse and any dependents you claim on your federal tax return.

Regular Medical and Dental Expenses

• The cost of doctor's visits, tests, surgery, ambulance fees and prescription medications are qualified medical expenses for a HSA account. Other items that may be purchased outside of a doctor's office or without a prescription that are considered qualified medical expenses are pregnancy test kits, bandages, and the cost of an eye exam, eyeglasses and eye surgery.

Other Common Expenses

• The list of qualified expenses is quite extensive, but other common qualified expenses include artificial limbs, Braille reading material, crutches, fertility enhancement, service animals, hearing aids, oxygen, wheelchairs and wigs to cover hair loss from medical treatment.

Capital Expenses

• If you require improvements to your home due to a disability, the expenses incurred for remodeling your home to accommodate the disability are considered qualified medical expenses, but you cannot claim reimbursement for the entire amount. You must reduce the cost of the improvements by the increase in appraised value to your home. Improvements may include items such as creating wider doorways, installing walk-in showers, lowering cabinets, changing door hardware and outlets, and installing handrails throughout the interior and exterior of the home.

Insurance Premiums

• HSA funds cannot be used to pay private insurance premiums except for COBRA coverage, long-term care insurance premiums and premiums paid for insurance while you are drawing unemployment benefits. You can use HSA funds to cover the cost of Medicare premiums, including premiums deducted from payroll by your employer. You cannot use HSA funds to pay Medigap premiums.