I spend more on healthcare than my HSA can cover right now. How to handle reimbursements?

Question

My partner just changed jobs to an employer that only offers a high deductible health plan. This is not an ideal situation for our finances as we both have chronic health conditions, his being high risk, and we expect to hit our out of pocket max ($6000). We also recently discovered that even though coverage began on March 1, because of his pay schedule, there are no funds in the HSA yet because funds won't be taken out until his next paycheck mid-month. (not sure how we have coverage since they also haven't taken out any premiums).

These factors have resulted in a situation where, even though we maximized our HSA contribution, the funds available in our HSA are going to be lagging behind the amount we owe on medical expenses for at least the next several months.

Which strategy will minimize our losses the most? Should we: 1. Charge every expense and reimburse ourselves as the money becomes available in the HSA so we can at least be making 2% on a cash back credit card? (We would not be taking on debt as we have enough in savings to cover the credit card payments.) 2. Make all the payments we can using the HSA primarily, charge the rest, and reimburse ourselves as funds become available later?

Are there any potential risks to either of these plans? And am I losing the tax benefit of the HSA when I reimburse myself?

Answer 1

The HSA tax deduction comes when you contribute money to the HSA, not when you take money out. So you can contribute up to the max and take your maximum deduction each year, regardless of what medical expenses you have.

If you have medical expenses, but no money left in your HSA, you will just have to pay for them out-of-pocket. However, in the future when your HSA has money in it again, you can reimburse yourself for medical expenses you have now. As long as you have an HSA in place (even if there is no money in it currently), there is no time limit to reimburse yourself for those medical expenses.

Reimburse yourself for what you can, and keep track of whatever expenses you are unable to reimburse at this time. Hopefully, in a future year your health will improve (or your medical coverage will improve), and you can "catch up" reimbursing yourself for these old expenses.

Regarding your question about tax benefit:

The HSA acts similar to a traditional IRA when invested, growing tax-deferred. So if you contribute, and choose not to withdraw but instead invest, there are tax advantages, similar to an IRA. However, if you are already investing a sufficient amount in retirement accounts, there is nothing wrong with reimbursing yourself now for the expenses if you need the money. You get the primary tax deduction either way.