A massage? Health savings accounts may cover more than you think

Spending money on health care isn't fun, but there is a way many of us can get a nice break on the price thanks to triple-strong tax breaks of health savings accounts. Stephen Neeleman — founder of HealthEquity, a group that services 2.3 million such accounts at more than 33,000 companies — sheds some light on how to reap the benefits.

Q: What are HSAs?

A: An HSA (health savings account) is a tax-advantaged savings account that belongs to the account holder. If an account holder changes jobs, the account and money stay with them, just like a personal bank account. HSAs are always paired with a qualified high-deductible health plan (HDHP). HSAs can reduce your adjusted gross income and lower taxable income. In most states, HSA funds earn interest tax-free. Funds roll over year to year and can be used with Medicare after retirement for qualified medical expenses.

Q: What's new about HSAs?

A: The IRS is increasing the annual HSA contribution limit from $3,350 in 2016 to $3,400 in 2017 for individuals with single coverage, while the family coverage amount is staying the same at $6,750. And starting in 2016 veterans became eligible in certain circumstances to contribute to an HSA.

Q: How do they save consumers money?

A: HSAs are paired with a high-deductible health plan, which often has a lower premium than a traditional plan. Some of the money you would have otherwise spent on premiums can go into an HSA instead. It allows consumers to save pretax money and withdraw it tax-free when it is spent on qualified medical expenses.

Q: What are the most common things consumers use them for?

A: Consumers can use an HSA to cover insurance deductibles and qualified health care expenses.

Q: I understand you can use them to pay for some surprising things like gym memberships. How does that work?

A: With a letter of medical necessity from a doctor, expenses like gym memberships or even a mattress can be recommended to treat a specific medical condition and would be considered a qualified medical expense.

Q: What about for stress reduction?

A: If stress is causing other diagnosed medical conditions, treatments may be paid for with an HSA with a letter of medical necessity from a doctor. Improvement of mental health or relief of stress is generally not covered. For example, the costs of a massage just to improve general health do not qualify. However, if the massage therapy is recommended by a physician to treat a specific injury or trauma, then it would qualify with a letter of medical necessity.

Q: Can you use them to pay for your Medicare premiums?

A: Members can use an HSA to pay for Medicare premiums and out-of-pocket expenses that include deductibles, co-pays and coinsurance, including: hospital and inpatient services, physician and outpatient services, Medicare HMO and PPO plans and prescription drugs.

Q: What's one thing consumers need to know to make sure they get the most out of their HSAs?

A: HSA funds do not expire at the end of the year. They continue to roll over and grow, and you own them when you leave your employer. At the age of 65, consumers can withdraw the money for non-qualified medical expenses and pay income tax similar to a traditional IRA distribution.

Q: What can you spend HSAs on?

Here are some of the items one can purchase with an HSA account. For a comprehensive list of qualified expenses and commentary on potentially qualifying items, visit HealthEquity.com/qme.

Cobra premiums. In the case you lose your job or transition to a new one, HSA funds can be used to pay for Cobra coverage.

Acupuncture. Members can include in medical expenses the amount paid for acupuncture.

Dental. What members pay for the prevention and alleviation of dental disease is a covered expense. Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants and fluoride treatments to prevent tooth decay. Treatments to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures and other dental ailments.

Vision. Eye exams are covered, as well as eyeglasses and contact lenses needed for medical reasons. In addition, eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy, is a covered expense.

Alcohol and drug addiction treatment. Inpatient treatment at a therapeutic center for alcohol or drug addiction, including meals and lodging, are covered. Members can also include in medical expenses amounts paid for transportation to and from Alcoholics Anonymous meetings in the community if the attendance is necessary for treatment.

Weight loss. Amounts paid to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension or heart disease) are covered. Those include fees for membership in a weight-reduction group. However, members can't include membership dues in a gym, health club or spa as medical expenses, but are able to include separate fees charged there for weight-loss activities. Members can't include the cost of diet foods or beverages in medical expenses because the foods and drinks substitute for what is normally consumed to satisfy nutritional needs. You can include the cost of special food in medical expenses only if:

• The food doesn't satisfy normal nutritional needs,
• The food alleviates or treats an illness, and
• The need for the food is substantiated by a physician.

Fertility enhancement. Members can include in medical expenses the cost of the following procedures to overcome the inability to have children:

• Procedures such as in vitro fertilization (including temporary storage of eggs or sperm).
• Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children.

Anything after the age of 65! Once an account holder turns 65, an HSA acts much like a 401(k) and funds can be used for anything without penalty. Merely income taxes need to be paid on the funds.