This article will probably only be useful to people who live in the USA and have recently opened up a Health Savings Account (HSA), or are considering one. If that doesn’t apply to you, well, see ya next time.
Over a year ago, I switched from a traditional health insurance plan — the kind with co-pays — to a high deductible health plan. This was a new kind of plan that my firm started offering. It has lower monthly payments than the traditional plans, the downside is you have to pay out of pocket for medical expenses, at least until you meet your deductible.
At the same time, my company also started offering HSA account to employees. HSA stands for Health Savings Account, so technically, saying “HSA account” is redundant, but I do it anyway, suckers. An HSA is only available to people with a high deductible health plan. Either you or your employer can contribute to your HSA, and if you do contribute to it, there are some solid tax benefits to doing so.
You use your HSA account to pay for qualified medical expenses. This includes doctor’s bills, prescription medications, and a bunch of other stuff.
The beast is that the IRS requires you to keep good track of all your HSA expenses. It took me a while to figure out a good process for that. It also took me a while to grasp the differences between my shiny new high deductible health insurance and my traditional co-pay-style insurance.
I’m writing these notes up so you don’t have to go through as much effort as I did learning this stuff. OK, here we go:
1. When you go to the doctor, give them your insurance card
This is just like you did with your old co-pay plan. Even though you are technically paying out of pocket for some doctor’s visits, you still want to process the visit through insurance. There are a couple reasons for this. First of all, you want your expenses to count towards your deductible. That won’t happen unless you have your doctor process the visit through insurance. Second, if your doctor is “in-network”, they’ll automatically give you a discount off their list price. So while you might have to pay more out of pocket than a traditional co-pay, you are still getting a discount off the doctor’s list price.
2. Keep each year’s paperwork in a folder
Set up a folder at home to keep all your receipts. I usually separate them out into years, so right now my folder is labeled “HSA 2011”.
When your doctor processes a visit through insurance, the insurance company will send you an Explanation of Benefits (EOB). As you get these in the mail, just stuff them into your folder.
Keep all your other receipts in the folder too, including receipts from the pharmacy whenever you buy rescription drugs. If a doctor ever asks you to pay for visit while you’re still at the office, make sure you keep the receipt.
Since these are tax-related records, I’d recommend keeping them for 7 years to be conservative.
3. Match your doctor bills to EOBs
After the doctor processes the visit through insurance, they should send you a bill in the mail. Locate the matching EOB and staple it to the doctor’s bill. If you aren’t sure which bill goes with which EOB, look for the date of service and/or the doctor’s name on the EOB to help you match it up.
Make sure your doctor has billed you for the correct amount. The EOB should state:
- The doctor’s list price. On my EOBs this is labeled as Billed Amount.
- The doctor’s actual charge for this visit. If you visit an in-network doctor, your actual price may be discounted from the list price. On my EOBs this is labeled as Max Amount.
- The amount that the insurance company is paying. On my EOBs, this is labeled as Payment Amount. In many cases, the insurance company pays nothing, and you’re responsible for the doctor’s actual charge. Sometimes, depending on your plan, the insurance company might pay for your visit, for example if you went in for preventative care. The insurance company might also pay the bill because you’ve already met your deductible for the year.
- The amount you are responsible for paying. On my EOBs this is labeled as Deductible Amount.
Make sure the doctor’s actual charge that’s printed on the EOB matches the amount due on your doctor’s bill. If it doesn’t match, contact your doctor to clear up the discrepancy.
4. Pay your bills
If your doctor’s bill matches the actual charge printed on the EOB, then go ahead and pay the bill.
My HSA, which is administered by Chase, gives you a variety of ways to pay your bills. They have an online bill pay system similar to what your bank probably offers. They also offer a Visa debit card that you can use to pay the bill. It’s not a credit card, it just takes money directly out of your HSA.
Ideally, you’d pay all your medical bills straight out of your HSA. But if you end up using one of your personal accounts to pay a medical expense, you can reimburse yourself later through the HSA. For example you might pay for a doctor’s visit using your personal credit card and then later reimburse yourself out of the HSA.
I find the easiest way to reimburse myself is to send myself a check using the HSA’s bill pay system. That way, the amount of the check will match the medical expense to the penny and it’s easy to reconcile later. You might also be able to use your HSA’s debit card at any ATM to withdraw the appropriate amount of cash. At least, this is one of the options I have through Chase. But I don’t like this solution too much because ATMs typically only let you withdraw in increments of $20, which makes it tough to reconcile everything later.
5. Reconcile your statements
At the end of each month, your HSA provider will create a monthly statement of all the activity in your account. Print this out.
Go through the statement and for every payment, make sure you have a matching receipt. For doctors visits, you should have a matching doctor’s bill and EOB, stapled together from step 4. For prescription drug payments, you should have the receipt from the pharmacy. If you have a matching receipt, put a check mark next to it on your printed-out statement. If you don’t have a matching receipt, do your best to remember what the payment was for, and write this down on the statement.
Ideally, you want to have receipts for each payment on the statement. If you don’t have all the receipts this month, try to keep them all for the following month.
That’s it! I’m not a lawyer or IRS expert, so please don’t take this as “official” advice. It’s just the process I use. Any additional suggestions or improvements are welcome!