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-advantaged¹savings tools available. But did you also know you have different ways to use the account? There's a way to potentially supercharge your HSA and maximize its benefits. It's called delayed reimbursement, and it's a simple financial strategy that lets your HSA funds grow while you still cover your healthcare costs.

With delayed reimbursement, instead of paying for medical expenses directly from your HSA, you pay out-of-pocket and let your HSA balance continue to grow. Then, you reimburse yourself later — there's no time limit on when you can do this, as long as the expense occurred after your HSA was established.

When might it make sense to use delayed reimbursement?

Delayed reimbursement is particularly useful if you have enough cash flow to cover medical expenses out-of-pocket and want to take advantage of your HSA's tax-free growth potential. By letting your HSA balance grow — especially if you're investing a portion of it — you can build a larger nest egg for future healthcare costs or even retirement.

It may also make sense if you're young, healthy, and don't expect large medical bills in the near future. In this case, your HSA can act more like an investment account, growing tax-free over time.

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

Yes. The delayed reimbursement method works specifically with Health Savings Accounts. Unlike Flexible Spending Accounts (FSAs) or Health Reimbursement Arrangements (HRAs), HSAs don't have a "use it or lose it" provision and the funds roll over year after year. This makes them uniquely suited for the delayed reimbursement strategy.

What is an example of delayed reimbursement with an HSA?

Let's say you visit the doctor and receive a bill for $500. Instead of using your HSA debit card, you pay with your personal credit card or bank account. You save the receipt and let your HSA funds continue to grow. A year later, your HSA has earned returns through investments. You reimburse yourself the $500 from your HSA tax-free, and you've benefited from the growth in the meantime.

Here's a step-by-step walkthrough:

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

When you have a medical expense, use your personal funds — credit card, debit card, or cash — instead of your HSA. This keeps your HSA balance intact and growing.

Step 2: Save your receipts.

Keep detailed records of every qualified medical expenses you pay out-of-pocket. You can use the HealthEquity Mobile app to snap photos of receipts and store them digitally. This makes it easy to track expenses and submit reimbursements later.

Step 3: Let the money grow in your HSA.

While your receipts accumulate, your HSA funds can continue to grow. Many members choose to invest a portion of their HSA in mutual funds, which can provide potentially higher returns over time. The longer your money stays invested, the more it can grow — tax-free.

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

There is no deadline for reimbursing yourself from your HSA. Whether it's a month, a year, or a decade later, you can submit your saved receipts and withdraw funds tax-free at any time. This flexibility is what makes the delayed reimbursement strategy so powerful.

Enjoy the health savings.

Delayed reimbursement is a straightforward way to make the most of your HSA. By paying out-of-pocket now and letting your HSA grow, you can potentially build a significant reserve for future healthcare costs — or even use it as a supplemental retirement fund. The strategy works best when you have the cash flow to cover current expenses and the discipline to keep your receipts organized.

Remember, always consult with a financial advisor or tax professional to understand how delayed reimbursement fits into your overall financial plan.

¹HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-deductible with very few exceptions. Please consult a tax advisor regarding your state's specific rules.