Life can change quickly, and many of those changes come with unexpected healthcare costs. Whether you are preparing for surgery, welcoming a new baby, changing jobs, or planning for retirement, a health savings account can help make those expenses a little easier to manage.
A health savings account, commonly called an HSA, is a tax-advantaged account available to eligible individuals enrolled in a qualifying high-deductible health plan. The money in the account belongs to you, carries over from year to year, and can generally be used tax-free for qualified medical expenses.
An HSA can be a helpful resource during major life events such as surgery, childbirth, divorce, job loss, disability, and retirement.
Preparing for Surgery
If you need a planned surgery, your HSA can help cover expenses such as deductibles, coinsurance, second opinions, and follow-up care.
Before scheduling a procedure, it is helpful to:
- Confirm that the hospital and physician are in your network
- Ask whether an anesthesiologist, specialist, or outside laboratory will be involved
- Check whether prior authorization is required
- Request an estimate of your expected costs
- Compare providers and facilities when possible
Taking a little time to ask questions and understand your options can help you avoid surprises and make your HSA dollars go further.
Growing Your Family
Pregnancy, childbirth, and adding a dependent can bring several new healthcare expenses. HSA funds may generally be used for qualified costs such as:
- Pregnancy tests
- Prenatal appointments
- Ultrasounds and laboratory work
- Childbirth-related medical bills
- Breast pumps and lactation supplies
- Fertility treatments
- Certain childbirth education expenses
Adding a child or moving from individual to family coverage may also change the amount you are eligible to contribute to your HSA.
Keep in mind that health plan eligibility and HSA tax-dependent rules are not always the same. Before using HSA funds for another person’s care, it is a good idea to confirm that the person qualifies under federal tax rules.
Changing Jobs or Losing Coverage
One of the most valuable features of an HSA is that the account belongs to you, not your employer.
If you leave your job, your existing HSA balance remains available for qualified medical expenses. You may also be able to use HSA funds to pay COBRA premiums after losing employer-sponsored coverage.
You can only continue making new contributions if you remain enrolled in an HSA-qualified health plan and continue to meet the eligibility requirements.
Managing Everyday Healthcare Expenses
HSA funds are not only for major medical events. They can also be used for many everyday healthcare products and services, including:
- Doctor and specialist visits
- Deductibles, copays, and coinsurance
- Prescription medications
- Many over-the-counter medications
- Dental exams, fillings, crowns, and braces
- Eye exams, glasses, contacts, and contact solution
- Therapy and other qualifying mental healthcare
- Hearing aids and batteries
- Chiropractic care and acupuncture
- Blood-pressure monitors and glucose-testing supplies
- CPAP machines and supplies
- Crutches, walkers, and wheelchairs
- Bandages, first-aid supplies, and hot or cold packs
Menstrual care products, including pads, tampons, liners, and menstrual cups, are also generally considered qualified expenses.
Paying for Medical Travel
Certain costs related to traveling for medical care may also qualify. This can include:
- Mileage to and from appointments
- Parking fees
- Highway tolls
- Public transportation
- Ambulance services
- Limited lodging when travel is necessary for qualifying medical treatment
It is important to keep records showing the date, destination, purpose, and cost of the travel.
Supporting Mental and Behavioral Health
HSA funds can generally be used for qualified mental and behavioral healthcare, including:
- Counseling and psychotherapy
- Psychiatric appointments
- Inpatient mental health treatment
- Substance-use disorder treatment
- Prescribed behavioral health programs
The care must generally be related to diagnosing, treating, or preventing a physical or mental health condition. Services purchased only for general wellness may not qualify.
Accommodating a Medical Condition or Disability
Certain expenses related to a disability or diagnosed medical condition may qualify, including:
- Service animal acquisition, training, and care
- Entrance ramps
- Widened doorways
- Bathroom modifications
- Handrails
- Stair lifts
- Certain medically necessary home improvements
Eligibility may depend on why the improvement was made and whether it increased the value of the home. Documentation from a medical provider may also be needed.
Massage therapy, weight-loss programs, and special dietary products may qualify in limited situations when they are recommended to treat a diagnosed condition. General relaxation, fitness, or wellness expenses usually do not qualify.
Preparing for Retirement and Medicare
An HSA can also be a valuable part of your long-term financial planning.
If you retire before age 65, you may continue using your existing balance for qualified medical expenses. HSA funds may also be used for COBRA premiums and certain qualified long-term care expenses.
Once you enroll in Medicare, you can no longer contribute to an HSA. However, the money already in the account remains yours and can still be used for qualified expenses, including certain Medicare premiums.
HSA funds generally cannot be used tax-free for Medicare supplement, or Medigap, premiums.
Because Medicare enrollment can sometimes be retroactive, employees approaching age 65 should carefully plan the timing of their final HSA contributions.
What Generally Does Not Qualify?
Not every health-related purchase is HSA-eligible. Expenses that generally do not qualify include:
- Cosmetic procedures performed only to improve appearance
- Teeth whitening
- General-purpose vitamins
- Gym memberships for general fitness
- Ordinary toiletries
- Fitness trackers used for general wellness
- Nonprescription sunglasses
- Vacations taken for general health
- Funeral or burial expenses
Although medical and recreational cannabis are legal under Michigan law, cannabis remains illegal under federal law. Because of that, it is generally not considered a qualified HSA expense.
Keep Your Receipts
You are responsible for showing that HSA withdrawals were used for qualified medical expenses.
Keep receipts and records that show:
- What you purchased
- The date of the expense
- The amount you paid
- Who received the care
- Why the expense qualified
- That the expense was not reimbursed by another plan
You do not always have to reimburse yourself right away. Some people choose to pay eligible expenses with other funds, save the receipts, and reimburse themselves from the HSA later.
Make Your HSA Work for Every Stage of Life
Your HSA is more than an account for meeting your annual deductible. It can help you manage routine healthcare costs, prepare for unexpected expenses, and build savings for future medical needs.
Before using your HSA, confirm that the expense meets current federal requirements and check whether your administrator requires a prescription, letter of medical necessity, or other documentation.
For questions about your HSA, high-deductible health plan, or employee benefits, contact your Michigan Planners service team.