How to Use an HSA to Pay Medical Bills — Even the Old Ones

A woman tries to close the door on her mounting pile of debt.
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If you have a Health Savings Account but not enough money to cover your medical expenses, you are not necessarily doomed to insurmountable debt — even if you owe on old medical bills.

Alexandra Wilson, a Certified Financial Planner in Atlanta, used her HSA contributions to cover medical bills from when she gave birth to her daughter the previous year.

She front-loaded her HSA in anticipation of her daughter’s arrival. But as so many new parents discover, Wilson ended up making additional visits to her pediatrician post-delivery.

Instead of racking up debt or digging into her regular savings, she increased her HSA contributions and used that money to pay off the bills.

“You’re saving money because you’re not having to pay taxes on that money,” Wilson said.

Want to know how you can start paying down old medical debt with your HSA? Read on.

How to Use an HSA to Pay Off Medical Debt

Money that you put into an HSA is yours to keep — unlike a Flexible Spending Account, which has a use-it-or-lose-it annual requirement.

If you (or your employer) have contributed to your HSA, you may have some savings built up. Here’s how to know if you can use that money to pay off old medical debt.

If You Currently Have an HSA

Using your HSA to pay off old medical debt is dependent upon the answer to one question: Did you incur the debt before you set up your HSA?

If the answer is “yes,” you cannot use the HSA.

If the answer was “no,” you can.

Pro Tip

Even if your medical debt is in collections, you can make payments using your HSA card — just ensure you have enough money on your HSA card to cover the expense.

Let’s say you’ve been contributing $100 a month to your HSA for one year. You have $1,200 in the account when you break your arm and go to the emergency room.

You end up getting a bill for $2,000, which is $800 more than you have in your account. Don’t panic.

You can use the $1,200 you’ve already saved to pay part of your bill, then use your regular $100 contributions to the HSA to make monthly payments on your bill for the next eight months — the good news is that most healthcare providers will agree to payment plans.

With older debt, it might not be as simple as a swipe of your HSA card, particularly if you initially paid the bill using a credit card. You may need to call your HSA provider and provide receipts to get approval. Assuming you do get approval, you’d essentially be reimbursing yourself from your HSA.

You’ll have to report all HSA distributions on tax form 1099-SA when you file your tax return. But so long as you used the money for medical expenses, those distributions are not taxable.

If You Had an HSA in the Past

Let’s say you used to work for an employer that offered you a high-deductible health care plan and you added money to the HSA. Then you got a new job (or switched plans), and you signed up for health insurance that wasn’t high deductible. What happens to your HSA?

“You can still continue to use your HSA — you just can’t contribute to it while you don’t have a high deductible health plan,” Wilson said.

Pro Tip

The HSA annual contribution limits for 2022 are $3,650 for individuals and $7,300 for family coverage.

That means you can use savings from an old HSA to pay for this year’s medical expenses or other old medical debt, so long as you incurred that expense after you opened the HSA.

And what happens to the money you don’t use?

That account is good forever and can be used to pay for future medical expenses — including after you stop working. Even if you use the money for non-medical expenses during retirement, you’ll pay only income taxes on the withdrawals, as you would with a 401(k).

And if you meet the plan’s minimum savings threshold, you’ll have the option to invest the money so the funds in your account can grow.

Which means that HSA could help keep you physically — and fiscally — healthy for a long time.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.