Health Reimbursement Account FSAs
What Do they Cover and How to Use Them
A Health Reimbursement Account puts money away from your earned income at work tax-free. In other words, you do not have to pay income tax on the amount you elect to put toward your health reimbursement account. You do have to be very careful that what you buy are qualified medical expenses for your health reimbursement account – and the rules for what qualifies to be included in a HSA changed under the healthcare reform law. So while expenses such as deductibles, coinsurance, co-payments, and many medical procedures that are necessary and performed by a medical professional – dental, vision and chiropractic for example – are covered, some elective procedures and over the counter medications are not.
Many people use a health reimbursement account debit card to manage their funds, which may be the easiest way, while other submit receipts by mail of fax. Again, you have to be careful because if you mistakenly use your health reimbursement account for something that is not really an eligible expense you can be subject not only to the income taxes that should have been paid, but also to a 20% penalty. Be very sure to hang on to documentation about what you used your health reimbursement account for, since it can be assumed that the item or procedure was not covered if you do not have the documentation of what it was.
Choosing a Health Reimbursement Account
As you can imagine, one of the hardest parts of signing up for a health reimbursement account, as opposed to other kinds of flexible spending account like a dependent care FSA, is knowing what your medical expenses will be over the plan year. Medical expenses naturally come and go, and for the purpose of a health reimbursement account you have to be conservative – remember that like any other flexible spending account what you put aside is not refundable if you don’t spend it. List those eligible expenses you are fairly certain you will incur, and decide whether it is worthwhile to open a health reimbursement account for them. So how much potential spending makes a health reimbursement account worthwhile? Theoretically any amount will save you money, but in practice there is certainly a minimum amount that not only makes this type of flexible spending account worth it, but also ensures that if you are off by a little here and there you will still have other eligible expenses to fill in.
You likely will not have a choice as far as health reimbursement account companies because most businesses only offer one choice, but if you do you will want to carefully go over the expenses you will have and see if there are any subtle differences in how they are treated by the FSA. The underlying rules are the same across all FSA companies, but sometimes there are differences in how they interpret them. Also look at the ease of their processes and of course look for word-of-mouth suggestions.
Health Reimbursement Account Eligible Expenses
This is not an exhaustive list, but just a sample of what your health reimbursement account might cover. Some procedures and items on this list are used in multiple ways and for multiple reasons, so please check with your plan about whether the item is covered. This list is not meant to guarantee that your health reimbursement account will definitely cover the item or procedure, but is merely meant to give you a general idea. To be completely sure refer to your plan’s materials or check with your company’s plan administrator:
- Acupuncture Treatment for a medical diagnosis
- Alcohol Dependence Treatment
- Ambulance Costs that are uncovered by insurance
- Artificial Teeth when needed medically
- Chiropractic Treatment – a common use since some insurance plans do not cover it
- Prescription Contact Lenses
- Contact Lens Replacement Coverage
- Co-pays at the doctor or specialist
- Crutches and other items needed after injury
- Deductibles and coinsurance
- Dental Procedures – which often have high coinsurance
- Diagnostic Tests that are uncovered
- Eye Exams and necessary eyeglasses
- Hearing Aids and Batteries
- Some Professional Nursing Services
- Orthodontic Treatment (one of the main reasons people use a HSA)
- Orthopedic Shoes
- Periodontal Fees
- Psychiatric Care which is sometimes uncovered by insurance
- Wheelchairs and related devices
Again, check with your company’s administrator about you health reimbursement account FSA plan’s specifics, but the above should give you a general idea of the kinds of items and procedures that most health reimbursement accounts cover. Also note that there may be timing issues related to when you purchase the item and when you use it. The latter may take precedence, but this is something you should check.
Health Reimbursement Account Ineligible Expenses
There are many intricacies as far as what your health reimbursement account might not cover, but we can provide you with examples of what is unlikely to be reimbursed. Again, check with your plan materials or plan administrator for any specific item, especially if it is not clear whether it is covered or not. Here are some of the items most likely to not be covered as eligible expenses:
- health insurance premiums
- cosmetic items
- aesthetic cosmetic surgery
- ‘controlled substances (even if prescribed)
- general health items not designed to address a medical illness or disease
A health reimbursement account is not for everyone. These expenses can be hard to predict, and you could end up having withheld too much money from your paycheck if you are not careful. Note that if you had a health reimbursement account some years back some of these items may have actually been covered, but some of the laws have changed or been tightened up significantly. That said, for those who know about certain expenses, or who have expenses that naturally recur, these accounts can help them save money on their taxes. Careful planning is needed, and keeping a close watch throughout the plan year is quite important.
Forbes recently provided a good update about the rules for a health care FSA
One example come from Massachusetts which offers HCA Accounts to its employees