HSA Reimbursement

What is HSA Reimbursement?

HSA reimbursement is the concept of using money from a health savings account (HSA) to “pay back” qualified medical expenses that were made out of pocket, usually because the total expense exceeds the amount in the account at the time. HSA reimbursement is permitted for any qualified medical expense. The primary benefit of HSA reimbursement is to obtain the same pre-tax advantage of an HSA despite paying for medical expenses with taxed earnings.

How Does HSA Reimbursement Work?

For a practical example of how HSA reimbursement works, consider Rob, a software firm employee who decides to visit the urgent care clinic on the way home from the office. At the clinic, the doctor performs an examination and suspects the cause of Rob’s persistent stomach ache is appendicitis. He sends Rob straight to the emergency room for an MRI, which confirms the diagnosis. Rob is immediately prepped for surgery, and wakes up five hours later without his appendix. 

Rob barely had time to call his family to inform them he was going into surgery, much less check to see if he could afford the procedure. When the final bill arrives, the total is over $10,000—more than twice what he has in his HSA—and even after negotiating with the hospital, Rob still owes more than $3,000 in hospital bills. Luckily, he has enough to cover the remaining bills using his savings—but he loses the tax advantage of using his HSA.  

HSA reimbursement is how Rob is able to recoup some of those lost tax dollars. Using receipts from his out-of-pocket payments as proof, Rob is able to withdraw $3,000 from his HSA as the funds become available, effectively negating the tax penalty of using his savings.   

As you can see, HSA reimbursement is an effective way to leverage the tax advantage of a health savings account for medical expenses, even when there is no money in the account itself. Rob was lucky: he had insurance, and he had enough in his HSA and savings to pay his medical bills at the time. If that hadn’t been the case, the resulting debt might not have ruined Rob financially, but the damage to his credit score might have affected his ability to obtain a home loan, rent an apartment, or even get a job. It’s worth noting that HSA reimbursement is a concept unique to the United States, the only developed country where a significant number of citizens are permitted to be uninsured and where a person’s employment can determine whether they have insurance and what insurance they have.