How to Use an HSA to Pay Medical Bills


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 one year to cover medical bills she incurred the previous year when she gave birth to her daughter.

She had 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 in your HSA 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 2023 are $3,850 for individuals and $7,750 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. Once you turn 65, you can use money in your HSA for non-medical expenses. You’ll pay income taxes on the non-medical withdrawals, as you would with a 401(k).

However, if you leave your current employer or switch health plans, your HSA may charge you a monthly administrative fee. Fees vary by plan but are generally $5 per month or less. They’re usually waived if your HSA balance is above a certain amount (typically $1,000 to $5,000).

If you meet the plan’s minimum savings threshold, you’ll have the option to invest the money in your HSA 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 deputy editor at The Penny Hoarder.

Rachel Christian, a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder, also contributed.

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