HSA Reimbursement

What Is HSA Reimbursement?

HSA Reimbursement refers to the process of getting paid back from a Health Savings Account (HSA) for eligible healthcare expenses. An HSA is a type of savings account that allows individuals to set aside money on a pre-tax basis specifically for healthcare costs. Individuals can submit a claim for reimbursement from their HSA after they incur a qualified medical expense. The funds used from an HSA are not subject to federal income tax at the time of deposit.

What Is the History of HSA Reimbursement?

The history of HSA Reimbursement goes back to the signing of the Medicare Prescription Drug, Improvement, and Modernization Act by President George W. Bush in December 2003. This act introduced Health Savings Accounts to the American public. The aim was to help individuals save for qualified medical and retiree health expenses on a tax-free basis.

Initially, HSAs were created to accompany High Deductible Health Plans (HDHPs), offering a way for consumers to offset the higher out-of-pocket costs with tax-free savings. The interest in HSAs has steadily grown over the years as they offer triple tax advantages: contributions are tax-deductible, the interest accrued is tax-free, and withdrawals used for qualified healthcare expenses are also tax-free.

Thus, the HSA Reimbursement system was born out of a need to manage the growing healthcare costs while still providing essential healthcare services to the population. It has since evolved with changing healthcare landscapes but continues to serve the same fundamental purpose.

How Do You Calculate HSA Reimbursement?

HSA Reimbursement is calculated based on the actual amount spent on eligible healthcare expenses. The steps to calculate HSA Reimbursement would typically be:

1. Keep a record of all your eligible healthcare expenses, which can include prescriptions, doctor's office visits, surgeries, dental care, vision care, etc. Save all the associated receipts.
2. Submit a detailed claim to the HSA provider that includes the incurred health care cost. You should provide copies of receipts or other documentation as proof of the expenses.
3. Upon approval, you get reimbursed from your HSA account for these costs.

The reimbursed amount is directly related to your expenditure, as long as it falls under the category of eligible healthcare expenses as defined by IRS. Remember that the maximum amount you can contribute to your HSA in a year is set by the IRS, and this may limit your potential reimbursement.

What Are Some Specific Instances Where HSA Reimbursement Would Typically Be Applicable?

HSA Reimbursement would typically be applicable in the following instances:

• Prescription Medications: Any prescription drugs prescribed by a doctor for treatment of a health condition.
• Medical Procedures/Surgeries: This includes costs for operations and any related post-operative care.
• Doctor's Office Visits: Visits to a primary care physician or a specialist for treatment or preventive care.
• Dental Care: Expenses related to dental treatment such as cleaning, fillings, braces etc.
• Mental Health Care: Payments for psychiatric care and therapy sessions.
• Eyecare: Expenses related to eye examinations, prescription eyewear, contact lenses, and corrective eye surgeries.
• Physical Therapy: Fees paid for physiotherapy or rehabilitative treatments.
• Laboratory Fees: Charges for diagnostic tests and lab fees.
• Qualified Medical Equipment: Purchases of equipment such as crutches, wheelchairs, or other medical aids.
• Certain Over-the-Counter Medications: As of 2020, expenses for certain non-prescription drugs and menstrual care products are also eligible for HSA reimbursement.

What's the Difference Between HSA Reimbursement and FSA Reimbursement?

The main differences between HSA (Health Savings Account) Reimbursement and FSA (Flexible Spending Account) Reimbursement include:

• Ownership: HSAs are owned by the individual and therefore, the funds remain with the individual even if they change jobs. FSAs are owned by the employer, and unused funds typically can't be taken by the employee when changing jobs.

• Rollover: HSA funds roll over year to year, there is no "use it or lose it" policy. With an FSA, funds do not roll over (with some exceptions), and any funds not used by the end of the plan year are forfeited.

• Contributions: For HSAs, both employer and the employee can contribute to the account. For FSAs, usually only the employee contributes, but employers can also contribute.

• Eligibility: HSAs are only available to those with a High Deductible Health Plan (HDHP). There are no such eligibility requirements for FSAs.

• Withdrawals: Withdrawals from an HSA for non-qualified medical expenses are subject to taxes and penalties. With an FSA, funds can only be withdrawn for eligible medical expenses.

• Contribution Limits: For 2021, the maximum amount an individual can contribute to an HSA is $3,600 and for a family, it's $7,200. For an FSA, the maximum contribution for 2021 is $2,750. This amount is set by the IRS and may change year by year.

What Are Some Examples of FSA Reimbursement?

FSA Reimbursement may be applicable for the following eligible healthcare costs:

• Doctor's Office Visits and Procedures: This includes payments for preventive care, treatment of illnesses, surgeries, and other associated costs.
• Prescription Medications: Any prescription drugs recommended by a healthcare provider for treatment.
• Over-the-Counter Medications: Non-prescription drugs (OTC) with a written prescription from a healthcare provider, are also eligible for FSA reimbursement.
• Dental Care: Procedures including teeth cleanings, orthodontics, fillings, crowns, etc.
• Vision Care: Eye exams, contact lenses, prescription glasses, and LASIK surgery are eligible.
• Mental Health Therapy: Includes psychotherapy, counseling, and addiction treatment.
• Physical Therapy and Chiropractic Services: Expenses related to physical therapy, chiropractic treatments, and other physiotherapies.
• Medical Devices: Medical equipment such as bandages, crutches, wheelchairs, diagnostic devices (like blood pressure or blood glucose monitors), etc.
• Smoking Cessation Programs and Prescribed Medicines for Cessation: These are also covered if prescribed by a healthcare provider.
• Laboratory Services: This could include diagnostic services such as blood tests, MRIs, X-rays, etc.

Remember to always keep your receipts when you have an FSA, as you need to submit them to your administrator to get reimbursement for these qualified expenses. Also, check with your FSA administrator for a complete list of eligible expenses as they can vary.

What's the Difference Between HSA Reimbursement and Health Reimbursement Arrangement (HRA)?

The main differences between HSA Reimbursement and Health Reimbursement Arrangement (HRA) are:

• Ownership: An HSA is owned by the individual, whereas an HRA is entirely owned by the employer.

• Contributions: Contributions to an HSA can be made by either the employee or the employer, while HRAs are funded solely by the employer.

• Portability: An HSA is portable, meaning the employee retains the account even if they change jobs or retire. However, an HRA is not portable and typically does not follow the employee if they change jobs or retire.

• Roll Over: HSA funds roll over from year to year without any maximum limit. Whether HRA funds roll-over is determined by the employer, and there might be a limit.

• Eligibility: HSAs are available only to individuals with a high deductible health plan (HDHP). HRAs, however, have no such requirement.

• Tax Benefits: Both HSA and HRA offer tax benefits, but with an HSA, the individual can choose to invest the funds, providing an opportunity for tax-free growth, which is not available with an HRA.

• Withdrawals: Withdrawals from an HSA can be made for any reason, but non-medical withdrawals are subject to penalties and taxes (prior to age 65). HRA funds can only be used for eligible healthcare expenses, as determined by the employer.

Remember, the specific rules of an HRA can vary widely as they are set by each individual employer. Always check with your employer or HR representative for the specific details and rules regarding your HRA.

What Are Some Examples of Health Reimbursement Arrangement (HRA)?

Health Reimbursement Arrangements (HRAs) are employer-funded accounts that reimburse employees for out-of-pocket medical expenses and in some cases, health insurance premiums. Here are some examples of HRAs:

1. Individual Coverage HRA (ICHRA): Employers reimburse employees for their individual health insurance premiums and other medical expenses. There's no maximum limit for employer contributions and it's available to businesses of any size.

2. Qualified Small Employer HRA (QSEHRA): For small employers with fewer than 50 employees who do not offer a group health plan. It allows employers to reimburse employees for individual health insurance premiums and other medical expenses. There are contribution limits set by the IRS.

3. Group Coverage HRA: This is typically paired with a high-deductible health plan offered by the employer. It helps employees pay for out-of-pocket medical expenses.

4. Retiree HRA: These accounts are designed for retired employees. Employers contribute funds which retirees can use to pay for medical expenses.

5. Excepted Benefit HRA (EBHRA): This can be offered even if the employer provides a group health plan but the employee doesn’t participate in it. The maximum annual contribution is limited, as defined by the IRS.

Remember, the expenses that can be reimbursed through an HRA depend on the terms set by the employer. Typically, they can be used for a range of medical, dental, and vision care expenses.

What Factors Influence the Amount Reimbursed From a Health Savings Account (HSA)?

Several factors can influence the amount that you can be reimbursed from a Health Savings Account (HSA), which include:

1. Contribution Caps: The IRS limits the amount a person or family may contribute to an HSA in a given year. For 2021, these limits are $3,600 for an individual and $7,200 for a family. Hence, the total amount that can be reimbursed can't exceed the contributions made, regardless of the total incurred healthcare costs.

2. Account Balance: The total amount you have in your account, factoring in contributions and withdrawals, will influence the amount available for reimbursement.

3. Eligible Expenses: You can only be reimbursed for eligible medical expenses as defined by IRS. Examples include costs for diagnostics, treatments, prescriptions, and certain over-the-counter medications. Non-eligible expenses won't be reimbursed.

4. Documentation: Proper documentation, such as invoices and receipts, is needed for reimbursement. Without adequate proof of the medical expenses incurred, the reimbursement cannot take place.

5. Time Limits: There may be no specific time frame within which you need to claim your funds from an HSA, unlike with FSAs. Hence, as long as the HSA exists, past eligible expenses can be reimbursed in the future.

6. Investment Gains: Contributions to an HSA account can be invested, similar to funds in a retirement account. Any earnings from the investments increase the total amount available for reimbursement.

What Are the Benefits of HSA Reimbursement?

HSA Reimbursement offers several significant benefits:

1. Tax Advantages: HSA contributions are made with pre-tax dollars, grow tax-free, and are withdrawn tax-free when used for eligible healthcare expenses. This triple tax advantage makes HSAs a powerful tool for healthcare saving and spending.

2. Rollover: Unlike a Flexible Spending Account (FSA), any unused funds in your HSA roll over to the next year. There's no "use it or lose it" policy, and funds can accumulate over the years.

3. Investment Opportunities: Money in an HSA can be invested, similar to an IRA or 401(k). Any earnings or interest on the funds in the account grows tax-free.

4. Portability: HSAs are owned by the individual, not the employer. This means if you change jobs, the HSA goes with you.

5. Future Expenses: You can draw on your HSA to cover eligible healthcare costs at any time. This means that you can save now for potential healthcare costs in retirement.

6. Flexible Spending: HSA funds can be used for a wide range of healthcare costs, including many that traditional health insurance does not cover.

7. Retirement Options: Once you reach age 65, you can withdraw money from your HSA for any purpose, although withdrawals for non-medical expenses will be taxed as income similar to a traditional IRA.

What Are the Potential Drawbacks or Disadvantages of HSA Reimbursement?

While HSAs offer numerous benefits, there are a few potential drawbacks to consider:

1. Eligibility Requirements: To open and contribute to an HSA, you must have a High-Deductible Health Plan (HDHP). This means you'll have higher out-of-pocket costs before your insurance starts paying for your healthcare.

2. Potential for High Costs: Because HSAs are tied to HDHPs, unexpected or major health events can lead to significant costs before reaching your deductible.

3. Minimal Provider Intervention: An HSA demands more direct engagement from the patient in terms of managing healthcare costs and payments. This may be a negative for people who prefer more hands-off comprehensive coverage.

4. Recordkeeping: To ensure funds are used properly and avoid penalties, you need to keep receipts and records of all medical expenses. Failure to do this may cause difficulties in verifying that withdrawals were for eligible expenses.

5. Potential Penalties: If HSA funds are used for non-qualified healthcare expenses before the account owner turns 65, the amount spent will not only be subject to income taxes, but also a penalty.

6. Contribution Limits: There is a limit to how much you can contribute to an HSA each year, potentially limiting the fund’s usefulness for those with high healthcare costs.

7. Limited Coverage: Some health expenses are ineligible for HSA reimbursement. Therefore, payment for these services or products would have to come out of pocket and not be tax-advantaged.

Which Employers Are Likely to Be Affected by HSA Reimbursement?

Employers that offer High Deductible Health Plans (HDHPs) as part of their employee benefits package are likely to be affected by HSA Reimbursement. These could include:

1. Large corporations: These often offer a range of health plans to their employees, which may include HDHPs. If the corporation contributes to employees' HSAs, they need to manage these contributions and comply with applicable tax laws and regulations.

2. Small and medium-sized businesses: These may offer HDHPs as a more affordable option for health coverage. If they decide to contribute to employees' HSAs, similar responsibilities apply.

3. Start-ups and tech companies: Many newer or more progressive companies offer HSAs as part of a competitive benefits package. They, too, need to navigate the logistics of managing these plans.

4. Non-profit organizations: Non-profits may also offer HDHPs and HSAs, particularly if they need to prioritize affordable health plan options due to budget restraints.

5. Employers with a largely remote or flexible workforce: HSAs provide more control and flexibility to the employee, which can be a desirable feature for a workforce distributed across different states with varying healthcare costs and coverage.

In general, any employer that offers (or considers offering) HDHPs and contributes to an HSA on behalf of employees must understand the implications, rewards, and responsibilities tied to HSA Reimbursement.