Is the Health Spending Card Real? How They Work

Health spending cards are a common financial tool that helps individuals manage healthcare expenses. These cards provide a structured way to pay for eligible medical, dental, and vision costs using pre-tax funds. They reduce the financial burden associated with healthcare by offering tax advantages and simplifying payments for medical services and products.

Understanding Different Health Spending Cards

The term “health spending card” refers to several distinct types of tax-advantaged accounts. Each type has unique characteristics regarding funding, ownership, and how unused funds are handled.

Flexible Spending Accounts (FSAs) are employer-sponsored benefits. Funds contributed to an FSA are deducted from an employee’s paycheck on a pre-tax basis, reducing taxable income. FSAs are subject to a “use-it-or-lose-it” rule, requiring funds to be spent by the end of the plan year. Employers may offer a grace period of up to two-and-a-half months into the next plan year or allow a carryover of up to $660 for plan years ending in 2025 to the following year.

Health Savings Accounts (HSAs) offer a triple tax advantage: contributions are tax-deductible, investment earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Eligibility for an HSA requires enrollment in a High-Deductible Health Plan (HDHP). For 2025, an HDHP means a plan with a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage, and a maximum out-of-pocket limit of $8,300 for self-only or $16,600 for family coverage. Unlike FSAs, HSA funds roll over year after year and are owned by the individual, remaining accessible even if employment changes.

Health Reimbursement Arrangements (HRAs) are exclusively funded by an employer. The employer retains ownership of the funds, and they typically revert to the employer if an employee leaves the company. Reimbursements from an HRA for qualified medical expenses are generally not taxable to the employee. The employer defines the rules for how funds can be used and whether any unused amounts roll over from one plan year to the next.

Using Your Health Spending Card

Using a health spending card involves understanding which expenses are eligible and the necessary documentation for reimbursement. Funds from these accounts can only be used for qualified medical expenses, as defined by the Internal Revenue Service (IRS). These expenses typically include doctor visits, prescription medications, dental care, vision care, and certain over-the-counter items. While IRS guidelines provide a broad definition, specific plan documents may further limit what can be reimbursed.

The process of using the card is similar to a debit card, allowing for direct payment at the point of sale for eligible services or products. Many cards can also be used for online purchases. For expenses paid out-of-pocket, individuals can submit a claim to the plan administrator for reimbursement, often through an online portal or mobile application.

Maintaining detailed records is important when using a health spending card. The IRS requires that all claims for reimbursement be substantiated with information from a third party, such as a detailed receipt or an Explanation of Benefits (EOB) from an insurance company. This documentation must clearly describe the service or product, the date of service, and the amount incurred. Failure to properly substantiate an expense can lead to the reimbursement being considered taxable income. Practices such as self-certification, random sampling of claims, or waiving substantiation for small amounts or specific providers are generally not permissible under IRS rules.

How to Obtain a Health Spending Card

The pathway to obtaining a health spending card depends on the type of account desired. Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) are exclusively offered through employers. Employees typically enroll in these plans during their employer’s annual open enrollment period or as new hires.

Health Savings Accounts (HSAs) are commonly offered by employers, often alongside a High-Deductible Health Plan (HDHP). If an employer does not offer an HSA, or if an individual is self-employed, they can open an HSA independently through various financial institutions, including banks, credit unions, or investment firms. To be eligible for an HSA, an individual must be covered by an HDHP, not be covered by other non-HDHP health insurance, not be enrolled in Medicare, and not be claimed as a dependent.

The enrollment process for an individual HSA typically involves completing an application online or in person at a financial institution. Required information includes personal details such as full name, date of birth, Social Security number, and a government-issued identification. Providing details about the qualifying HDHP is necessary to confirm eligibility for contributions. Once established, contributions can be made directly to the account, either through payroll deductions if offered by an employer, or by direct transfer to the financial institution.