Health Savings Accounts – Understanding the New Rules

Health Savings Accounts – Understanding the New Rules



A health savings account is designed to give consumers a bit more control over the way they spend their health care dollars. The funds you put into an HSA enjoyed tax-privileged treatment; as such, those funds are subject to guidelines issued by the Internal Revenue Service. You can use the money in your health savings account only to pay for legitimate medical expenses, including the cost of the prescription drugs you need to stay healthy.

But while health savings accounts remain a viable option for consumer driven health care, it is important to note that there are some new rules of the road. The recently enacted health care reform includes a number of changes to health savings accounts, including restrictions on the types of medications that can be reimbursed and changes to the annual contribution amounts.

Prescription Drug Coverage
Because health savings accounts provide significant tax savings and other benefits, the IRS places restrictions on how those monies can be used. You may use the money put into an HSA only to cover legitimate medical expenses incurred by the individual or families participating in the plan.

Prescription drug costs are considered legitimate medical expenses by the IRS, and that means that you can use your HSA funds to pay for those costs. You can use the money in your HSA to pay for prescription drugs not covered by your health plan. You can also use your HSA money to pay any copayments or deductibles on those prescriptions.

Over the Counter Medication and Health Care Reform
Starting on January 1, 2011, you can still use your HSA funds to pay for over the counter medications, but only if you have a prescription from your doctor. If you plan to use your HSA funds to purchase over the counter medications, such as cough and cold remedies, allergy medications and non-prescription pain relievers, you must first obtain a prescription from your doctor.

If you suffer from seasonal allergies, and want to use a less costly non-prescription allergy medication, be sure to talk to your doctor when you go in for your next exam. Getting the prescription ahead of time allows you to avoid a costly office visit, thereby using your HSA funds more wisely.

Drug Coverage Restrictions
While you can pay for prescription drugs using the money in your HSA account, HSA plans do restrict how those funds can be used. For instance, if you do not have prescription coverage, or if the prescription you need is not covered by your plan, you can use your HSA funds to pay for that drug. However, the amount you pay will not be applied to your health plan?s deductible.

If you do have prescription coverage, you must pay the entire cost of the prescription at the pharmacy. If the pharmacy you use is in the health insurer?s network, the health plan will automatically file a claim for you and you will be reimbursed from the funds in your HSA. The price you pay at the network pharmacy is the lesser of the health plan?s preferred price or the pharmacy?s usual price for the medication.

Future Rule Changes
The rules and regulations governing HSAs are subject to change, so it is important to keep up-to-date. The recently enacted restrictions on use of HSA funds to pay for over-the-counter medications is one example. If you get your HSA through your employer, check back at each open enrollment period to review any changes that impact your funds. If you buy your insurance and fund your HSA on your own, ask the administrator of your HSA about any changes that will impact your use of the funds going forward.

Before you invest in a new HSA or add to an existing one, it helps to understand how the recent rule changes affect you and your health care decisions. The entire purpose of the health savings account is to help you make smarter health care decisions, and knowing the rules before you invest can make you a smarter and more effective health care consumer.



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