Can I Use My HSA for a Copay?

Health Savings Accounts (HSAs) offer a tax-advantaged savings and spending option for managing healthcare costs. This financial tool provides flexibility for a range of health-related expenses.

Understanding Health Savings Accounts

A Health Savings Account (HSA) is a tax-advantaged savings account that can be used for qualified medical expenses. To be eligible for an HSA, an individual must be covered by a High Deductible Health Plan (HDHP). An HDHP typically features a higher deductible than traditional health plans, which means the policyholder pays more out-of-pocket for medical care before the insurance coverage begins.

Individuals enrolled in Medicare generally cannot contribute to an HSA, nor can those covered by another health plan that is not an HDHP, with some exceptions for limited-purpose or specific-disease coverage. The primary benefit of an HSA stems from its triple tax advantage. Contributions made to an HSA are tax-deductible, reducing taxable income in the year they are made. The funds within an HSA grow tax-free through investments, and withdrawals for qualified medical expenses are also tax-free. Funds in an HSA roll over year after year, unlike Flexible Spending Accounts (FSAs), meaning there is no “use-it-or-lose-it” rule.

Eligible Medical Expenses

Yes, copayments are considered an eligible medical expense for which Health Savings Account funds can be used. This applies to copays for doctor visits, specialist consultations, and emergency room services, provided they are for legitimate medical care. The IRS defines a broad range of qualified medical expenses that can be paid using HSA funds without incurring taxes or penalties.

Beyond copayments, HSA funds can cover deductibles, which is the amount an individual must pay out of pocket before their insurance plan starts to pay. These expenses must be incurred by the HSA account holder, their spouse, or qualified dependents.

Other eligible expenses include:

• Prescription medications, including insulin.
• Vision care, such as eye exams, prescription eyeglasses, contact lenses, and even contact lens solution.
• Dental care expenses, including routine cleanings, fillings, extractions, and orthodontics like braces.
• Mental health services, including therapy sessions and psychiatric care.
• Certain medical equipment, such as crutches, wheelchairs, and even breast pumps.
• Rehabilitation services, including physical therapy and occupational therapy.

Ineligible Expenses and Usage Guidelines

Certain expenses are not considered qualified medical expenses by the IRS and cannot be paid with HSA funds without tax implications.

Cosmetic procedures, unless necessary to correct a deformity arising from a congenital abnormality, personal injury, or disfiguring disease, are generally ineligible. General health supplements, like multivitamins or herbal remedies, are typically not covered unless prescribed by a medical professional to treat a specific medical condition. Over-the-counter medications generally require a doctor’s prescription to be eligible, though some items, such as menstrual care products and certain cold and flu remedies, have been made eligible without a prescription through specific IRS guidance. Health club memberships, even if recommended by a doctor for general health, are typically not qualified medical expenses. Using HSA funds for ineligible expenses before age 65 results in the withdrawal being treated as taxable income and subject to an additional 20% penalty.

Individuals typically access their HSA funds using a debit card linked directly to the account, which can be used at the point of service for eligible expenses. Another common method involves paying for the medical expense out-of-pocket and then reimbursing oneself from the HSA. This reimbursement can occur immediately or years later, provided the expense was incurred after the HSA was established.

Maintaining records is important for HSA withdrawals. Account holders should keep receipts, invoices, and Explanation of Benefits (EOBs) statements for medical expenses paid with HSA funds. These records are for tax purposes and can be requested in the event of an IRS audit to verify that withdrawals were for qualified medical expenses.