Pay Provider or reimburse yourself from the HSA?

[RobbieB]

I pay the provider direct from the HSA VISA card. The bank has all the transactions on file. Doctors, dentists, pharmacies and co-pays. I keep zero receipts.

 

[pb4uski]

So if sometime along you get audited by the IRS you should home that the bank, doctor's office, dentists, etc still have records. Both the doc and dentist that I have used for most of my adult life have retired and their practices are done, so I would be SOL without my own records.

 

[RunningBum]

Keeping and organizing receipts is a pretty simple task to let me keep money in a tax free account. One spreadsheet, one shoe box. Last year I decided to back it up by scanning the receipts and keeping a folder on my PC for each year. Still simple.

 

[thefinancebuff]

Yeah, that's not the question though. Can you reimburse yourself $100 if the EOB showed $100 but you negotiated it down to $85 with the provider?

Of course not. You reimburse only the actual expenses.

But what it the EOB shows that my responsibility is $100 but I only paid $85 because I called the provider and they offered me a 15% discount if I paid them that day with my credit card?

It doesn't matter why you decided to reimburse yourself less than the amount on the EOB.

 

[Spanky]

Thanks for all the input. I do not realize that you could negotiate a discount.

 

[FlaGator]

IRS Audits

At the year-end review with my accountant, I asked about a couple of minor things in the interest of "tax hygiene" and future record keeping. He's registered with the IRS, been in the game for decades, has helped people I know through letter inquiries, and plays *everything* by the book.

While not dismissive, he told me the requirements, grinned and said, essentially, the odds of getting audited were less than tiny. He said full audits are now rare, letter inquiries are slightly more common, and quit worrying about it.

Based on that, I'd say let your conscience guide you on the $80 negotiated payment vs. the $100 on the EOB...…..

 

[Montecfo]

But what it the EOB shows that my responsibility is $100 but I only paid $85 because I called the provider and they offered me a 15% discount if I paid them that day with my credit card?

The amount you paid controls. Now could you use the EOB as evidence of a higher "payment" amount. Sure! Would it fly on audit? Unlikely.

 

[fh2000]

I am thinking about paying for medical expenses with a credit card to earn rewards and then reimbursing yourself from the HSA. Are there any disadvantages?

I am not clear on the second step.

How do you actually reimburse yourself from HSA account? I have an debit card from HSA account, but not sure how to withdraw cash and put in my pocket. Are you able to write a check or just transfer money from HSA account to your bank account?

 

[candrew]

For simplicity in reporting/record keeping we plan to pay our Medicare part B and part D premiums as billpay directly from our HSA account. We plan to spend our HSA accounts down before RMD age.

DW started Medicare this month. She is paying Medicare B & D premiums on a quarterly basis using her rewards CC and subsequently reimbursing herself with HSA funds.

In similar fashion, we will spend down our HSA's prior to RMD's.

 

[candrew]

I am not clear on the second step.

How do you actually reimburse yourself from HSA account? I have an ATM card from HSA account, but not sure how to withdraw cash and put in my pocket. Are you able to write a check or just transfer money from HSA account to your bank account?

Bolded text above.

 

[fh2000]

I am not clear on the second step.

How do you actually reimburse yourself from HSA account? I have an debit card from HSA account, but not sure how to withdraw cash and put in my pocket. Are you able to write a check or just transfer money from HSA account to your bank account?

Never mind. A google search show this is doable:

"Reimburse Yourself for Out-of-Pocket Medical Expenses
Did you know that you can pay yourself back from your HSA for IRS-qualified medical expenses that were paid out of pocket? We offer multiple options for accessing your funds.

HSA Bank Health Benefits Debit Card – You can use your HSA Bank Health Benefits Debit Card at an ATM4 to reimburse yourself for eligible expenses paid out-of-pocket (a transaction fee may apply).

Note: When withdrawing HSA funds from an ATM, be sure to select the "checking" option (not savings) when asked the type of account you are withdrawing from.
Online Transfer – On HSA Bank’s Member Website, you can transfer funds from your HSA to an external bank account, such as a personal checking or savings account. There is a daily transfer limit of $2,500 to safeguard against fraudulent activity.

Checks – Use your HSA Bank checks to reimburse yourself for an IRS-qualified medical expense already incurred. Simply write a check from your HSA to yourself and deposit it into your external personal checking or savings account."

 

[I am He]

No, it sounds smart to me. Also, once you receive the bill, call the provider and ask if they offer an additional discount to you if your pay right then and there by credit card.... I've received 10-15% discounts plus the 2% that I get from the credit card company.

I just played this out myself (much to my surprise). They offered a prompt pay discount if paid in full. Saved about $800 since she maxed out last year.

I'm going to keep the $ in the HSA, hang on to the receipts and someday "cash them out."

 

[Dave J]

I pay all my medical bills, insurance premiums ect with a 2% cash back credit card. I keep a running total in a folder with receipts by year, and at the end of each year I write a check to myself to reimburse everything I have paid for the year. Reconciling every year end seems to make it easier for me. Been doing this for well over 10 years and it works fine. I always put in max allowed and have not been sick. We have just under 40k in HSA now. Over 65 so can't put new money in, so this will be gone in 10 - 15 years , based on current spending. All tax free!

 

[Dave J]

Something I found interesting is you can not reimburse yourself for Medicare supplement premiums.But you can for other premiums. So be careful!

From.... https://www.kiplinger.com/article/r...reimburse-you-for-medicare-premiums-paid.html


Even though you have your Medicare premiums paid directly out of your Social Security benefits, you can withdraw money tax-free from your HSA to reimburse yourself for those expenses. After you turn 65, you can use HSA money tax-free to pay premiums for Medicare parts B and D and Medicare Advantage plans (but not premiums for Medicare supplement policies), in addition to paying for other out-of-pocket medical expenses.
"

 

[Clone]

So if sometime along you get audited by the IRS you should home that the bank, doctor's office, dentists, etc still have records.

We have our HSA with Fidelity. When we pay expenses using the HSA debit card, it creates a record on the statement that shows who was paid and the amount. I think those make for a good enough record.

 

[audreyh1]

But what it the EOB shows that my responsibility is $100 but I only paid $85 because I called the provider and they offered me a 15% discount if I paid them that day with my credit card?

I just keep track of what I actually paid the provider.

 

[Montecfo]

Hi candrew. Can you (and Audrey, think you said the same) let me know the reasoning behind this strategy as far the timing?

Thanks.

 

[Perryinva]

By spending from HSA, they have tax tree income that allows them more headroom to do Roth conversions from tIRA, the goal being to pay the least tax up front for elimination or substantial reduction of RMDs. This is a good strategy if none of your income is fixed and already puts you in a higher tax bracket. It preserves the tax advantages of LTCGs and divs, maximizing the amounts converted in the lower brackets.

My company offered HSA later in career and I did not realize the advantages to maxing it out and leaving it there for growth, until the last may e 5 years, so it is only around $60k. We plan on using it like a ROTH once our income is fully retirement sourced with medicare premiums as the baseline. We kept a few large hospital and dental receipts for use if needed.

 

[wmc1000]

We just use ours for dental work. Last year I transferred directly to reimburse ourselves annually for the medicare part b payments we made. No paperwork required for that.

 

[audreyh1]

Hi candrew. Can you (and Audrey, think you said the same) let me know the reasoning behind this strategy as far the timing?

Thanks.

You have to use it up sometime. Once we are Medicare eligible, we are no longer adding to the HSA. I was looking for an easy way to use it in terms of record keeping/proof, and paying regular, predictable Medicare premiums via billpay directly from the HSA seems like a good way. And we should have just enough to bridge the gap between Medicare and starting SS at 70 as planned. That seemed as good as any and don’t want to wait until older for some unpredictable medical expenses after we’re on Medicare as those should be significantly reduced.

We don’t actually need to draw from our IRAs until RMDs. Roth conversions would be the only reason.

So the practical effect for us is to increase the monthly funds available for spending as 1) we are no longer shuttling funds to the HSA Accounts from taxable accounts and b) Medicare premiums are covered until SS takes over plus no longer paying private insurance premiums except for Medigap.

 

[jimbee]

By spending from HSA, they have tax tree income that allows them more headroom to do Roth conversions from tIRA...

Isn't that effectively converting the HSA to a Roth IRA?

 

[pb4uski]

I just played this out myself (much to my surprise). They offered a prompt pay discount if paid in full. Saved about $800 since she maxed out last year.

I'm going to keep the $ in the HSA, hang on to the receipts and someday "cash them out."

I was going to do that, but upon further reflection thought that DW or DD might not know that they can/should do a tax-free withdrawal if I were to pass unexpectedly. So once I get my documentation together in 2020 I will do a withdrawal for all qualified expenses from when we started our HSAs in 2010 to the end of 2019... I'll then do annual withdrawals thereafter.

Even so, our HSAs are high 5 digits and will remain there unless one of us goes into a nursing home and will pass to the surviving spouse tax-free but then be taxable once the surviving spouse dies.

 

[RunningBum]

Isn't that effectively converting the HSA to a Roth IRA?

Nothing wrong with that.

An HSA has an advantage over a Roth when contributing, because it's a reduction of your taxable income.

Once in your account, both benefit from tax free growth. However, when you die, a Roth passes tax-free to any heir, but for a non-spouse beneficiary, an inherited HSA is taxable.

 

[Rianne]

I So once I get my documentation together in 2020 I will do a withdrawal for all qualified expenses from when we started our HSAs in 2010 to the end of 2019... I'll then do annual withdrawals thereafter.
Even so, our HSAs are high 5 digits and will remain there unless one of us goes into a nursing home and will pass to the surviving spouse tax-free but then be taxable once the surviving spouse dies.

Once again, I've learned something valuable from pb4uski. Just to be sure, I can keep track of all my qualified medical expenses for a few years, then collect from HSA all at once...3 years down the road? I always thought you had to collect in the year of the medical event. Our HSA is also in 5 digit territory. I'd like to let it grow, then collect later, tax free.

 

[pb4uski]

You can go back to when you started your HSA... a lot of posters keep a running tally for what was spent and a file of receipts and can withdraw at will. Unfortunately, I'm not so organized.