I had purchased a pair if hearing aids back in November 2017 which totaled approximately $8,000. My health insurance covered $5000 of the cost. That left me with a $3000 balance which I had taken a loan out for to make the payments on till paid for. Would any of the payments on this loan qualify as medical expenses? I was thinking of using my HSA to make payments for this but don't know if I can without being penalized with the 20% tax for doing so.
Assuming the loan is through a third party, the loan payments are not qualified medical expenses, but the original expense for the hearing aids is, even if you paid it with money you received from a loan. Assuming that you had the HSA in place in November 2017 when you incurred this expense (even if there wasn’t enough money in it at the time), you can take the $3000 as a reimbursement from your HSA for the amount that your insurance didn’t cover. If you don’t have $3000 in your HSA right now, you don’t need to take it out all at once, either; you can take out a little at a time until you get to the $3000 total.
So, yes, in this scenario you can take distributions from your HSA a little at a time for this medical expense. And once you have this reimbursement, you can use it to make your loan payment.
If your “loan” is actually a payment plan with the hearing aid provider and you haven’t yet paid this $3000, then your payments are qualified medical expenses, because you are directly paying for your hearing aids with each payment. In that scenario, the payments are eligible to be paid from your HSA.