HSA Trojan Horse

[Burke]

As previously stated in this thread, withdrawals from the HSA cannot be made unless they are for legitimate medical expenses, either by providing a written claim form with documents, or by the health care provider swiping a debit card given to the accountholder for that purpose to directly pay them. I have confirmed this with 2 different clients who have the HSA accounts. For instance, in 20ll, if it is used to buy over-the-counter (non-prescription) drugs, it will reject and not be processed. So, I would accept the TP's print-out (which they can get) as eligible medical expenses withdrawn, or the figure which has been reported on the SA-1099 to the IRS.

[Jesse]

That is not necessarily true for all plans. There are several employers in our area that offer qualifying high deductible plans and the HSA's are set up at local financial institutions so the employee's have the ability to make contributions on their own besides what the employer contributes. The employee has a check book with which they can write out checks at their own free will.

The HSA is not restricted and 100% vested so the employee should be able to take the money at any time they please, or so I would think, however they would be subject to the penalty and tax.

Also, it is not a use it or lose it as was pointed out earlier but the funds can be w/drawn after reaching a certain age (I think it's 65 w/out looking) without using it for qualifying medical expenses.

[Burke]

The employee has a check book with which they can write out checks at their own free will. The HSA is not restricted and 100% vested so the employee should be able to take the money at any time they please, or so I would think, however they would be subject to the penalty and tax.

Interesting, and contrary to what I am being told. Tell you what, will investigate this further by talking with the custodians of these plans to get a definitive answer and will post.

[Golden Rocket]

Checkbook

Burke, the lady in question in Snag's case had an ordinary checking account with her name and "HSA Account" written in the upper left. It is on a local bank. She could write a check to her local bootlegger for moonshine.

[Burke]

Well, I guess you could say it was for medicinal purposes.

[Gary2]

But did she indeed pay the deductible? I don't believe you need to actually pay the bill from the HSA - you can pay with your own funds, cash or credit card and reimburse yourself with the HSA funds. The expenses must be incurred after the date the high deductible plan and HSA started. If she paid medical expenses (the deductible amount) of only $2,400 but w/drew $3,100, then only $700 would be taxable and subject to the penalty.

Don't focus on the deductible to the exclusion of other expenses. The deductible only represents what the individual must pay before the insurance kicks on expenses that are covered by the insurance. There may still be co-pays as well as deductible items not covered at all (e.g. dental expenses, possibly eyeglasses, contact lenses, hearing aids, etc.).

[Gary2]

As previously stated in this thread, withdrawals from the HSA cannot be made unless they are for legitimate medical expenses, either by providing a written claim form with documents, or by the health care provider swiping a debit card given to the accountholder for that purpose to directly pay them. I have confirmed this with 2 different clients who have the HSA accounts.

This is true for FSAs. FSA plans that issue debit cards are required to have them set up so that they can only be used for eligible expenses (and drugstores are required to have systems that facilitate that).

Many HSA plans choose to issue debit cards with similar restrictions, but there is no requirement from the IRS that they do so. It is perfectly legal for you to make a withdrawal from your HSA to pay for your vacation to Hawaii - as long as you're prepared to pay the taxes and penalties. An FSA is not allowed to release funds to you without being sure that they're for legitimate expenses, an HSA is.

[Jesse]

I'm really dense. After reading all the comments, the only thing of which I am certain is that I've treated this wrong. Probably 2-3 times.

1099-SA is for $3100. Family coverage. Deductible was $2400. Employee contributions to HSA was $2900. I'm assuming this is what is meant by "W" in Box 12.

Conversation with taxpayer indicates she spent appx $3100 from the account, and did not pay the deductible $2400 separately.

My calculation was the $3100 was taxable income (or else there would be no purpose for issuing the 1099-SA). Additionally, there would be a $310 penalty for 10%.

Don't focus on the deductible to the exclusion of other expenses. The deductible only represents what the individual must pay before the insurance kicks on expenses that are covered by the insurance. There may still be co-pays as well as deductible items not covered at all (e.g. dental expenses, possibly eyeglasses, contact lenses, hearing aids, etc.).

Agreed, but as in Snaggetooth's example - the money does not need to directly pay the deductible, you can reimburse yourself for the deductible you may have paid , as well as any other qualified expenses, but only for the period you were enrolled in the plan.

For example maybe you paid some of your deductible with a credit card and paid cash for some RX's, as long as they were incurred after enrolled in the plan and you have receipts to show the medical expense was paid, you can withdraw the funds from the HSA to reimburse yourself and pay no penalty or tax, correct?

[veritas]

The reasoning behind an HSA

is to cut medical costs. If people are spending thier own real money they are more likely to ask if a procedure is really necessary. Or assuming it is then they will want to know the cost and may shop around putting market forces to work. Another benefit is the cost of the insurance premiums are often reduced since the insurance company has less risk.


I have an HSA and I am concerned how my money is spent.

To give an example I called about a procedure and was quoted 3 to 5 thousand dollars. After shopping around I found the procedure could be done for 14 hundred dollars by very qualified doctors. I was referred to this clinic by a client who also has an HSA.

If like many people I had a PPO or HMO my concern would be about the deductible I would pay with no concern to the price of the service.

Until our medical care is driven by market forces (as it once was) there will never be any true cost containment.

[Gary2]

For example maybe you paid some of your deductible with a credit card and paid cash for some RX's, as long as they were incurred after enrolled in the plan and you have receipts to show the medical expense was paid, you can withdraw the funds from the HSA to reimburse yourself and pay no penalty or tax, correct?

Agreed, though I'm still unsure about crossing tax-year boundaries.

[Burke]

An FSA is not allowed to release funds to you without being sure that they're for legitimate expenses, an HSA is.

Thanks. Do you have a cite for this in the IRC? Or anywhere? What it means is, that we cannot take the info on the SA-1099 as anything more than "amount withdrawn," and that we must require the TP to certify at least that the total is for qualified expenses. Which, I guess, they do when they sign the return.

[Gary2]

Thanks. Do you have a cite for this in the IRC? Or anywhere? What it means is, that we cannot take the info on the SA-1099 as anything more than "amount withdrawn," and that we must require the TP to certify at least that the total is for qualified expenses. Which, I guess, they do when they sign the return.

Pub. 969 discusses both HSAs and FSAs. For FSAs, it says "distributions ... must be paid only to reimburse you....You must provide the health FSA with a written statement..." It also has links to the relevant revenue rulings and notices concerning the FSA credit cards.

For HSAs, it says "If you receive distributions for other reasons...," the implication being that such distributions are allowed, just penalized.

[Burke]

And why, pray tell, did they not make these plans with the same rules!!!??? Just askin'...........

[oceanlovin'ea]

Have HSA

We have an HSA account through my husband's employer. He puts money in every quarter and the company puts money in every quarter.
We pay our medical bills out of the HSA account. You go to the doctor and he bills you. You pay from the HSA account. I am making a payment to the doctor because I have not yet met my deductible. It doesn't really matter it is my bill to pay. That is what the HSA money is for...to pay our medical bills.

We each have a $2500 deductible and this year we have to pay 10% till we have paid $4000. Then the insurance pays everything. Last year it was just the $2500 deductible. Then insurance took over. If we paid the $2500 from our own pocket and then the insurance took over we would never use what was in our HSA Account.

You can't pay premiums, which are normally deducted from the paycheck anyway. But it is for your medical expenses. The insurance department where my husband works would have spoke up a long time ago if we were doing something wrong.

Linda, EA

[Burke]

We pay our medical bills out of the HSA account. You go to the doctor and he bills you. You pay from the HSA account. I am making a payment to the doctor because I have not yet met my deductible. It doesn't really matter it is my bill to pay. That is what the HSA money is for...to pay our medical bills. Linda, EA

Are you using a checking account and paying by check -- or a debit card? If a check, could you conceivably write a check on this account for, say, a mortgage payment? (I know it would be a disqualified distribution, but would it go through is my question.)