People with a health savings account now have more flexibility in how they use the money because of rule changes prompted by the coronavirus outbreak.
Health savings accounts, or H.S.A.s, let people save and invest for health and medical costs. The accounts have multiple tax benefits. Money is deposited into an H.S.A. tax free and grows tax free. You can also withdraw money from the account tax free, as long as it is spent on eligible expenses.
The accounts are available to people with health plans that meet specific criteria, like a high deductible — an amount you must pay for care before coverage starts. For 2020, your plan must have a deductible of at least $1,400 for an individual or $2,800 for a family to qualify for an H.S.A.
People can use the accounts to help pay for care until they meet their deductible or can let the money grow for future health costs. There were more than 23 million H.S.A.s, holding about $66 billion, at the end of 2019, according to the H.S.A. services firm Devenir.
Now, thanks to updates tucked into an early round of the federal coronavirus assistance program, people with H.S.A.s can take advantage of expanded benefits. “There are a whole bunch of financial implications with these new changes,” said Alison Moore, vice president of marketing at HealthSavings, an H.S.A. provider.
You can now use your H.S.A. to buy nonprescription medications like pain relievers and allergy pills, because the new law reversed a rule that had required patients to get a prescription to use their H.S.A. or a similar account — like a flexible spending account, known as an F.S.A. — to pay for most over-the-counter medicines. (Unlike health savings accounts, F.S.A.s are available only through employers, have lower contribution limits and aren’t portable if the worker changes jobs.)
The rule caused confusion and frustration because people had to ask their doctor for a prescription to buy items that didn’t normally require one. Now, if they need aspirin or cough medicine, they can just swipe their H.S.A. debit card.
“This is much easier,” said Todd Berkley, vice president of BenefitWallet, a unit of Conduent that manages H.S.A.s and other health accounts. The change is retroactive to Jan. 1.
What’s more, holders of both H.S.A.s and F.S.A.s can now use those funds to pay for menstrual products, including pads and tampons. “It’s about time,” said Kelley Long, a certified public accountant and a consumer financial education advocate with the American Institute of Certified Public Accountants.
The aid program also temporarily relaxed rules for telehealth services, in which patients seek treatment online or by video link. Until the end of 2021, H.S.A. health plans may cover telehealth and other remote care services without charge before you meet the plan deductible.
Telehealth is seen as a way to help curtail transmission of the coronavirus because patients don’t have to put themselves or others at potential risk by seeking treatment in person, said Shobin Uralil, co-founder and chief operating officer of Lively, an H.S.A. provider.
If you want to make an H.S.A. contribution for 2019, it’s not too late. You can contribute for 2019 up until the federal income tax filing deadline, which has been extended to July 15 because of the pandemic. You may contribute up to $3,500 annually for an individual, and $7,000 for a family, for 2019. People 55 and older can save an extra $1,000.
Here are some questions and answers about health savings accounts:
Q: I have a high-deductible health plan with an H.S.A. Do I have to meet my deductible before the plan will cover coronavirus testing and treatment?
A: H.S.A.-eligible health plans may cover coronavirus testing and treatment even if patients haven’t met their deductible, without jeopardizing the account’s tax benefits, the Internal Revenue Service has advised. (Typically, only preventive care like immunizations and screening mammograms may be covered outside an H.S.A. plan’s deductible.)
Recent federal legislation requires most health plans to cover Covid-19 testing without charge. Many plans are also voluntarily waiving costs for treatment. Details vary, so check with your health plan for specifics.
Q: Can I use H.S.A. funds to pay monthly health insurance premiums?
A: Generally, no — but there are some exceptions. If you are collecting unemployment insurance, for instance, or if you lost your work-based health insurance and are paying premiums yourself to continue coverage through the federal COBRA option, you can use your H.S.A. to pay your monthly health care premiums.
Q: Money is tight. Can I use my H.S.A. for nonmedical expenses?
A: Given widespread financial woes, people may be tempted to withdraw money from their H.S.A.s for rent or other pressing needs. But keep in mind that you’ll pay income tax on the money and, if you’re under 65, a 20 percent penalty. If, for example, you withdrew $1,000 for an expense that is not health related, you would owe a $200 penalty plus tax. (The federal relief law lets people take “hardship” withdrawals from retirement accounts without penalty, but didn’t include that option for H.S.A.s.)
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