Can I pay for that with my HSA?

When it comes to health savings accounts (HSAs), consider Michele Hosner a big fan. The mother of two from Pittsburgh typically uses her account to pay for routine expenses like allergy drugs. Recently, life threw her a curveball when her toddler cut himself and wound up in the emergency room. She used her HSA to cover the ER bill. “I was glad I had the money socked away,” she said.

Hosner is one of a growing number of people taking advantage of an HSA. This account allows patients with high-deductible health insurance plans to use pre-tax dollars for medical expenses. By the end of 2016, Americans held about 20 million HSAs, provided by employers, health insurance companies, banks or credit unions.

Despite their popularity, experts say that HSA holders aren’t making the most of their accounts. “Many people who have an HSA don’t understand the full breadth and depth of what it can do for them,” says Erin Hatzikostas, president of PayFlex, a leading HSA plan administrator owned by Aetna. To clear things up, let’s look at four common myths about HSAs and the truth behind them.

Myth: HSAs are “use it or lose it.”
Reality: Your HSA funds will roll over year after year.

HSAs were first introduced to the public in 2004. They’re often confused with FSAs, or flexible spending accounts, which date to the 1970s. FSAs also allow you to use pre-tax dollars, usually deducted from your paycheck, for medical expenses. But FSA funds must be used by the end of a calendar year, or you lose them. HSAs are different. The money you contribute to an HSA has no “expiration date.” You can withdraw it a week after you contribute it, or years later. “Most people are coming from an FSA world, which is ‘use it or lose it.’ That’s a mentality we’re trying to change,” says Hatzikostas. An important note: HSAs are also portable. If you switch jobs, you hang on to your HSA funds.

Myth: HSAs are short-term spending accounts.
Reality: HSAs are long-term savings accounts, and they’re great for retirement.

In a health emergency or times of financial hardship, you may use up your HSA funds on medical expenses. But if you can, experts recommend building up your HSA to last you into retirement. Budgeting for future health care costs is tricky business, because of inflation and the unforeseen conditions that crop up as we age. According to Fidelity Investments, in 2015 a 65-year-old couple could expect to spend $245,000 on health care throughout their retirement. Because funds earn tax-free interest (more on that below), HSAs can help retirees afford these costs. “It’s a really great vehicle for saving for the future,” Hatzikostas agrees.

Myth: HSA cash just sits in your account until you spend it.
Reality: HSAs come with investment options.

Like the money you might stash in a 401(k) or IRA, the funds you contribute to an HSA often can be invested in mutual funds. Consumers typically must save a minimum amount — say, $1,000 — before becoming eligible for investment options. 

Myth: Not many expenses can be paid for with HSA money.
Reality: You may be surprised at how many expenses are HSA eligible.

Hosner was happy to learn that sunscreen can be purchased with HSA funds, as long as it’s SPF 30 or more. “We go through a lot of sunscreen,” she said. “The fact that we can use our HSA account to pay for it was a happy surprise.” Other eligible expenses you might not know about:

• First aid and health monitoring supplies. Bandages, blood pressure monitors, compression socks.
• Some over-the-counter medications. Treatments for acne or allergies can be eligible if you get a prescription from your doctor. 
• Alternative treatments. Chiropractic service and massage, for example, are eligible with a doctor’s Letter of Medical Necessity (LOMN).
  
• Glasses and contact lenses. Many vision supplies are eligible with a prescription – from safety goggles and sunglasses to contact lens care supplies.
• Fertility and maternity expenses. “It can cover things like your shots, your IVF, your artificial insemination,” says Hatzikostas. Nursing moms may be happy to learn that breast pumps and breast milk storage bags are also covered.
• Children’s health expenses. Your kids’ health expenses are eligible even if they are not on your health plan.

Be aware that rules regarding eligible expenses can change from time to time.

If you have an HSA or are considering opening an account, educating yourself on the rules and benefits of HSAs can help you make smart decisions on spending and saving your health care dollars.