Be Sure To Take All Your
February 8th, 2008
Vol. 4, Issue 2
Few people who have a Health Savings Account really take advantage of all the tax-saving benefits these plans offer. One thing that anyone with an HSA should be aware of is all of the expenses that can legally be paid for from your account with pre-tax dollars. Having an HSA essentially makes all of your qualified medical expenses tax-deductible, so read this article carefully to make sure you aren't over paying your taxes. Remember, there is no virtue in paying more taxes than you really owe.
The main purpose of your HSA is to enable you to pay for qualified medical expenses with tax-free dollars. Qualified medical expenses are defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses). Most people remember to pay for doctor visits and prescription drugs from their HSA (or save the receipts and reimburse themselves later), but there are many medical expenses that people simply pay for, without realizing that because they own an HSA the expense is tax deductible. These are the most common:
Over-the-counter medications. Remember, your medicine does not necessarily have to be prescribed to be considered a qualified medical expense. Any time you buy a bottle of aspirin, cough syrup, bandages, or zit medicine for your teenager - save the receipt, so you can reimburse yourself from your HSA.
Dental expenses. Dental fees are typically the most expensive item that people forget to pay for from their HSA. From cleanings, to crowns, to dentures, all of your medically necessary dental work is eligible to be paid from your HSA.
Eye glasses and contacts. Just last week I went in for my annual eye exam. I got a new pair of glasses, a year's worth of contact lenses, and a bill for about $650. I paid for it all with my American Express, but the receipt went in my HSA file and at some point I will reimburse myself tax-free. Also, remember that prescription sunglasses are also considered to be a qualified medical expense.
A few years ago, before I had an HSA, and before I really knew how to snow-board, I had a terrible fall as I was boarding down a slope at Vail, and must have landed on my shoulder at 30 miles an hour. The doctor couldn't do much for me, but he did recommend that I have physical therapy. I think I paid $75 per session, for about 20 sessions.
Physical therapy. Most individual and family health insurance plans have very limited coverage for physical therapy, and that includes the coverage I had for myself. So I paid those expenses out of pocket - if it were to happen again, I now have HSA funds available.
Medical massage therapy. Yes, you can use funds from your HSA to pay for a massage, as long as your health care practitioner recommends it as treatment for a particular health condition.
Chiropractor visits. Remember that your HSA can be used for medically necessary expenses. If you go to your chiropractor due to a particular injury or functional problem, it is a qualified expense. The chiropractor's charges would NOT be considered eligible if you are getting adjustments for general health maintenance.
In some circles, seeing a therapist is reason for embarrassment, whereas in other parts of the country people brag about seeing their therapists. The reality is that mental therapy should be neither a symbol of shame nor a status symbol - it is simply another mode of treatment that can help people live healthier and happier lives.
Psychiatry, psychology, psychoanalysis, and psychotherapy - all of these modes of treatment can be paid for from your HSA. Keep in mind that qualified expenses are those that pay for treatment or prevention of a medical condition. If you are seeing a therapist strictly in order to save your marriage or improve your business skills, these would not be qualifying expenses.
More and more people are disillusioned with the way conventional medicine is practiced. The focus often seems to be on treating symptoms rather than reaching the root cause. Many physicians are very quick to prescribe the latest drug, when less expensive, safer, and often more effective natural remedies may work better.
However, the people who do rely on alternative medical treatments rarely receive reimbursement from their health insurance for these expenses. This is one of the reasons that HSA plans have become so popular among people who do favor natural and/or alternative medical treatments. Here is just a very small sampling of the types of treatment that would be HSA-qualified:
Acupuncture. Some think the beneficial results of acupuncture are strictly due to the placebo effect. My veterinarian wife would tell you differently. Though she mostly practices conventional veterinary medicine, she does do a good bit of acupuncture on dogs and cats, and gets some amazing results.
Homeopathy. Though controversial, approximately one out of 50 Americans currently uses homeopathy. Whether using the services of a professional, or simply buying homeopathic remedies from the natural food store, remember that these expenses can be paid for from your HSA.
Traditional Chinese Medicine. Chinese medicine has been practiced for thousands of years, and is becoming ever more popular in the United States. Of course, treatment modalities that originated in other countries, such as Ayurveda (from India), would also be considered a qualified expense.
Faith healing, shamanism, energy medicine, and other (perhaps) far out stuff. Yep, almost any type of treatment could be considered an eligible expense. Keep in mind that the procedure must be related to the treatment or prevention of a specific health condition. Services designed to raise your chi, balance your chakras, or strengthen your aura might be more than the IRS will allow.
Every Dollar Counts
Simply writing this article reminds me of medical expenses we've incurred where I forgot to save the receipt. That's like paying an extra 25% each time I do that. Last week I bought four tubes of lip balm for my son's incredibly chapped lips. Whole Foods gets over $3 a piece for those things, and somehow three of them already seem to have disappeared. Remember that I am not a tax accountant, and if you have any questions on what you can pay for from your HSA please consult with a qualified professional. But for what its worth, next time I buy some chap stick for him, I will be putting the receipt in my HSA receipts file.
P.S. - As the cost of group insurance goes up, many small businesses are desperate for solutions. Next month I'll talk about how setting up Health Reimbursement Arrangements can enable a small business to literally cut their health insurance costs in half.