Using Your HSA for Alternative Medicine
December 6, 2006
Vol. 2, Issue 11
Americans spend over $30 billion each year on complementary and alternative therapies, mostly out of their own pocket.┬áThat's because few health insurance plans cover expenses like homeopathy, acupuncture, or Chinese medicine.┬áBut for those of us who own an HSA, these expenses are 100% tax deductible when paid for through our health savings account.
Complementary Therapies Now Tax Deductible
Health Savings Accounts allow you to set up a tax-deductible account to pay for medical expenses that are not covered by your health insurance. These include expenses to cover your deductible, and other medical expenses like dental and eyeglasses. But many don't realize that HSA funds can be used to pay for virtually any type of medical service, as long as it pertains to the treatment or prevention of a specific health condition.
Because money withdrawn from a health savings account to pay medical expenses is tax-free, anyone who has an HSA can funnel all alternative medical expenses through their HSA and get a tax write-off. This could include biofeedback, naturopathy, Ayurvedic medicine, aromatherapy, magnetic healing, reflexology, and the list goes on.
People who use complementary therapies are often very health conscious, and go to traditional physicians less often. So it does not make sense for them to be paying a high premium for a traditional health insurance plan with a co-pay, particularly when their medical treatments are not covered anyway. Instead, many are choosing a low cost high-deductible HSA plan.
Alternative Therapies Becoming Mainstream
My wife Christie will be graduating from Veterinarian school this spring. Formerly a software salesperson, the idea to change careers occurred to her while we were traveling in the year 2000. We had both quit our jobs and were circling the globe for 13 months. In India one Sunday afternoon over some beers, the topic came up "What would you do if you could start all over again?" By the time we were in Nepal two months later, she had made up her mind on a new career.
Her veterinary studies have of course focused on the treatment of animals from a Western perspective. But next month she's going to be taking a class on acupuncture, a mysterious procedure that is said to work by affecting the flow of "Qi" energy throughout the body. There is clinical evidence that proves it works, but no one has been able to actually capture and measure Qi in a scientific way.
Many hospitals are now offering complementary treatments as well. The website for the Memorial Sloan-Keating Cancer Center states that complementary therapies are used to "help alleviate stress, reduce pain and anxiety, manage symptoms, and promote a feeling of well-being."
Some group health insurance plans are beginning to cover more complementary expenses, but there is still very little coverage for these expenses in individual or family plans. Those that cover chiropractic limit coverage to 12 - 20 visits per year, and a few will cover a limited amount of acupuncture. But I know of none that cover hypnotherapy, Reiki, iridology, or faith healers.
Why Complementary Medicine
The conventional medicine practiced by most MDs is called allopathic medicine. The philosophy of this system is to treat disease and injury using counteractive methods. For instance, if you have a fever you may take aspirin to make it go down, if your cholesterol is elevated you may take a statin to reduce it, if you have heartburn you may take an antacid. The thinking is mostly focused on removing the symptoms of disease, and the primary treatment modalities are surgery and prescription drugs.
But there are other ways to look at things. Naturopathic medicine is based on the belief in the body's own healing powers, which can be strengthened through the use of certain foods, vitamins, herbs, or other "natural" treatments. Traditional Chinese Medicine (TCM) is based on ancient Chinese theories about the balance of yin and yang. Ayurvedic medicine is based on principles of movement, metabolism, and structure.
Part of the growing use of complementary therapies is a reaction to the costs, side effects, and philosophy of conventional allopathic medicine. Physicians get much of their continuing education from the pharmaceutical industry, and they work in an environment where the insurers and the patients are both looking for a quick fix. The result is that the average 60 year old is now taking 5 regular medications, yet there is little expectation that those drugs will ever cure the health problems for which they're being used. Many consumers see this, and instead are using other methods to try to get to the root of their illness.
What is Considered a "Qualified Expense"
Qualified medical expenses have been partially defined in IRS Publication 502, and through various federal court rulings. There is no definitive list, but there are really very few restrictions as long as the procedure is for the treatment or prevention of a specific health condition. For instance, you could not use your HSA funds to pay for a relaxing massage for your own personal pleasure. But if your doctor recommends you get a massage for specific medical reasons, this is considered a qualified expense. Yoga would not normally be considered a qualified medical expense, but it would be if it was recommended as a physical therapy following some sort of accident.
Some may question why the government would give a tax deduction for someone to use some crazy energy vibration machine to cure their cancer. But this is as it should be. No one but you should be able to decide what type of treatment you will use for your own illnesses. By empowering individuals to manage their health as they see fit, Health Savings Accounts encourage personal responsibility and help loosen the monopoly on healthcare that conventional medicine has had for the past few decades.
If you do not yet have an HSA, there is still time to get a qualified health insurance plan in place before January 1. This will enable you to maximize your 2007 tax benefits, and in most cases lock in 2006 rates for 6 - 24 months. But you should act now, because 2006 will soon be history.
P.S. - Next month I'll talk about the coming Medicare insolvency, and why it is critical to put away as much money as possible to cover your medical expenses during retirement.