Delayed reimbursement: A simple trick to supercharge your health savings

You may already know Health Savings Accounts (HSAs) are one of the most powerful tax-advantaged¹ savings tools available. But did you also know you have different ways to use the account? There’s a way you can make use of an HSA technique that can bring you even more value and flexibility. It’s called delayed reimbursement.

The way HSAs are designed means you can pay for healthcare expenses out-of-pocket now. Then you can delay reimbursement from your HSA for those eligible medical expenses.

The key point to remember is you don’t have to reimburse yourself right away. In fact, the Internal Revenue Service (IRS) doesn’t stipulate a required reimbursement timeframe. So, you can effectively “bank” your receipts and save them to pay yourself back down the road.

When might it make sense to use delayed reimbursement?

The advantage of delaying reimbursement is to potentially compound your investment² and interest earnings. Then, you can withdraw funds from your HSA whenever you need it—even if you want to wait 20 or 30 years from now. Essentially, you may be able to get the best of both worlds—the tax advantages and growth potential of an HSA combined with the flexibility of a traditional savings account.

Do you need to have an HSA to use the delayed reimbursement method?

Yes. You can only be reimbursed for eligible medical expenses that occurred while you had coverage with a high-deductible health plan (HDHP) with an HSA. You can’t use the delayed reimbursement approach for any previous expenses made when you did not have your HSA.

For example, say you previously had a healthcare Flexible Spending Account (FSA) then switched to an HSA. You could only reimburse yourself for eligible expenses made during the time you were covered on your HSA. Delayed reimbursement wouldn’t work for any expenses when you had an FSA.

What is an example of delayed reimbursement with an HSA?

As an illustration, let’s say you need to pay a $1,000 doctor bill for an outpatient procedure. Here’s how the delayed reimbursement strategy could work.

Step 1: Pay for your healthcare out-of-pocket at the time of service or when you receive the bill.

Use your personal credit card, debit card, cash, or check to pay for the eligible healthcare expense. This is important, because using your HealthEquity® Visa® Healthcare Card³ would trigger the automatic reimbursement you’re attempting to avoid. Bottom line, pay for the eligible expense out-of-pocket, not directly with your HSA.

Step 2: Save your receipts.

Saving receipts is important. You don’t want to lose the receipts because you’ll need them one day. Without a receipt, you won’t be able to use this reimbursement method.

Take a picture of any receipts and store the hard copy somewhere safe. You can even save and organize receipts in your mobile or online account.

Step 3: Let the money grow in your HSA.

This is the waiting phase. Don’t pay yourself back right away. Instead, you can take advantage of the tax-free growth potential your HSA offers. Many members choose to invest in low-cost mutual funds to capture potential returns or let it earn interest.

Your goal here is to make that $1,000 work for you. If you take it out right away to pay your medical bill, you lose out on that potential growth.

Step 4: Reimburse yourself when you want, at your convenience.

Let’s say four years have passed. Maybe your $1,000 has grown a few percent each year (Note: investments carry risk, and growth is never guaranteed).

Now you’re thinking that you sure could use an extra $1,000 to buy a new dining room table. No problem! Just submit that original $1,000 receipt using your HealthEquity Mobile app. And within a few days, HealthEquity will transfer that $1,000 right from your HSA into your checking account as a reimbursement.

Even though this is a reimbursement, it usually doesn’t feel like a reimbursement. You paid the doctor bill years ago because you could cover the expense at the time. Wisely, you let the funds sit and grow while you waited for a rainy day. Now it’s yours to spend however you want!

Enjoy the health savings.

Imagine doing that for all your qualified medical expenses. Suppose your family spends on average $1,500 a year on out-of-pocket medical expenses. You can bank all those receipts each year for as long as you want.

So, let’s say you do that for 15 years. That’s $22,500 (!) worth of receipts you can collect and save.⁴

Voilà! Just like that you have cash available to take that dream vacation. Or whatever you want!

And this is how you can effectively turn your HSA into a general savings account with a tax-free investment growth opportunity. There is truly nothing else like it!