Is it possible to use HSA funds to cover a medical expense billed to a different insurance plan, which is not a HDHP?

Question

Long time lurker, but I have a question that I'd like some help with.

Earlier this year my contract/government job switched companies so I had to sign up for new benefits. Company 1's benefits were effective through 1/31/18, and Company 2's benefits were effective starting 1/8/18. My wife had a dental cleaning which we had to pay about $250 out of pocket for, after billing Company 1 insurance. To summarize:

• Company 1 had no HSA, and the health insurance was not a HDHP (deductible of $2500 a year). Billed the dental insurance (not regular health insurance) and had to pay the remaining $250 out of pocket for an operation on 1/31/18.
• Company 2 has an HSA, and I'm wondering if I can now use the HSA to reimburse us for the out of pocket expense.

Now my questions:

• I was covered by the HSA when the expense occurred, but I billed the non-HSA insurance. Can I still get reimbursed?
• How do the HDHP rules effect dental insurance? Do you add the dental deductible to the regular insurance to determine if you are eligible for an HSA?

Answer 1

The HDHP requirement applies to your HSA contributions, but not to your HSA distributions.

In order to contribute to an HSA, you need to be covered by a High Deductible Health Plan (HDHP) exclusively. Your contribution limit for the year is prorated based on how many months you have eligible coverage.

However, once you have money in your HSA, it is yours to spend on qualified medical expenses, whether or not you are eligible to contribute. You can pay for any out-of-pocket medical expenses (discussed in IRS Pub 502) that were incurred on or after the date that you opened your HSA. Dental expenses do qualify, and because you incurred the expense after you opened your HSA, you can be reimbursed for that expense from your HSA.

As I said, HDHP coverage is required to be able to contribute to the HSA, and you are not allowed to have any other general health coverage. However, you are allowed to have additional coverage that covers specific things, such as dental or vision coverage. (See IRS Pub 969, Qualifying for an HSA, Other health coverage for more details on the exceptions.) So yes, you can be HSA-eligible to contribute even if you have dental coverage.

Answer 2

If the service took place after the date the HSA was established, then funds in the HSA can be used to pay for that service.

In many cases Dental coverage is not linked to the high deductible policy, therefore it isn't unusual to use HSA funds to pay for dental procedures and dental co-pays. In fact a separate dental policy is allowed with a high deductible plan.

Based on the fact that the service was done on January 31st 2018, and the HSA had been established on January 8th 2018, you should be able to use it.

Depending on how the mechanics of reimbursement work and if you are sending money to the dentist or paying you back, the HSA custodian may ask for a copy of a bill, or an EOB (Explanation of Benefits), or they might not.

If you have funds in the account after you switch to a non-high deductible plan, you can still use HSA funds for medical services. You just can't add money to the HSA.