Health Savings Account (HSA) questions

Posted by Cathy on October 4, 2009, 11:17 pm

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I currently have an HDHP (High-deductible health plan) through my
employer - single coverage with a $2,500 deductible per year. I make a
weekly contribution through payroll (via cafeteria plan) to my Health
Savings Account (HSA). I understand my maximum contribution for 2009 is
$3,000. The HSA is through a local bank.

For 2008, they reported my total contributions to the IRS on a Form
5498-SA and also reported by distributions on a Form 1099-SA. And, I
did not have any issues with the information that was reported on these
forms. And, in 2008, I generally paid for all of my medical expenses
out of my everyday, regular bank account and then reimbursed myself
before the end of the year from my HSA account - just so I didn't have
to keep the receipts for 10 years to prove I actually had incurred the
expenses 10 years previously! And, given the situation I'm facing in
2009, I think it is probably a good idea to continue to do it this way -
if possible!

Ok, so in 2009, I had a medical bill that had not been processed by the
insurance company correctly and, despite receiving many statements from
the medical provider, I did not pay the bill as I was expecting the
insurance company to pay almost all of the bill (all except about
$3.00). Well, I forgot why I hadn't paid this bill and got a nasty gram
from the medical provider saying my account would be turned over to
collections within 10 days if it was not paid. So, just to satisfy
them, I went ahead and paid the bill directly out of my HSA account. A
few days after I'd paid the bill, I remembered why I hadn't paid it
previously - and I'm sure the provider would have put a delay on the
collections action had I called them explaining the reason I had not
paid the bill. (I generally refuse to pay medical providers until
insurance has processed it correctly and paid what they were supposed,
but this one slipped past me. Based on past experience, it is like
pulling teeth to get refunds from medical providers if they have been
overpaid by me.)

So, several weeks ago, the insurance company finally processed the claim
correctly. And, about 2 weeks ago now, I received a refund check in the
mail from the medical provider - surprisingly!

My question is: This money should go back into my HSA account -
correct??? I believe that I understand that if the bank is notified,
they can mark my deposit in their system so that it is not included in
the Form 5498-SA reporting for my 2009 contributions - which makes sense
to me - otherwise, there would be, in theory, a distribution included on
the 1099-SA that was actually NOT for a medical expense and subject to
tax and penalty on my 1040. However, when I end up spending this money,
I presume that it will be included in the Form 1099-SA that shows my
distributions for the year - is this correct?? I could potentially see
my 5498-SA showing $3,000 for 2009 and my 1099-SA showing $3,000 plus
this refund amount. Would that look funny or cause questions? Even
though I have met my deductible for 2009 of $2,500, I still have out of
pocket expenses for dental and eyeglasses that could easily eat up the
$500 plus that could be available in the account for the year.

I could see this scenario continuing on for me during the rest of 2009
as I have to pay for my prescriptions up front even though my deductible
has been met and then wait for a refund from the insurance company. So,
if I paid for the prescriptions from the HSA account and then got a
refund .... it appears to me that the 5498-SA and 1099-SA reporting
could get all screwed up if I am not on top of this. Or, am I just
thinking way too hard about this? And, maybe I just have to leave it to
the bank to screw it up and then try to convince them that their figures
are wrong after they issued the year end forms?

If anyone has any guidance for me, it would be most appreciated.

Cathy H.
Ellsworth, KS

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Posted by Y on October 5, 2009, 12:51 pm

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Cathy wrote:

> I currently have an HDHP (High-deductible health plan) through my

> employer - single coverage with a $2,500 deductible per year. I make

> a weekly contribution through payroll (via cafeteria plan) to my

> Health Savings Account (HSA). I understand my maximum contribution

> for 2009 is $3,000. The HSA is through a local bank.

> For 2008, they reported my total contributions to the IRS on a Form

> 5498-SA and also reported by distributions on a Form 1099-SA. And, I

> did not have any issues with the information that was reported on

> these forms. And, in 2008, I generally paid for all of my medical

> expenses out of my everyday, regular bank account and then reimbursed

> myself before the end of the year from my HSA account - just so I

> didn't have to keep the receipts for 10 years to prove I actually had

> incurred the expenses 10 years previously! And, given the situation

> I'm facing in 2009, I think it is probably a good idea to continue to

> do it this way - if possible!

> Ok, so in 2009, I had a medical bill that had not been processed by

> the insurance company correctly and, despite receiving many

> statements from the medical provider, I did not pay the bill as I was

> expecting the insurance company to pay almost all of the bill (all

> except about $3.00). Well, I forgot why I hadn't paid this bill and

> got a nasty gram from the medical provider saying my account would be

> turned over to collections within 10 days if it was not paid. So,

> just to satisfy them, I went ahead and paid the bill directly out of

> my HSA account. A few days after I'd paid the bill, I remembered why

> I hadn't paid it previously - and I'm sure the provider would have

> put a delay on the collections action had I called them explaining

> the reason I had not paid the bill. (I generally refuse to pay

> medical providers until insurance has processed it correctly and paid

> what they were supposed, but this one slipped past me. Based on past

> experience, it is like pulling teeth to get refunds from medical

> providers if they have been overpaid by me.)

> So, several weeks ago, the insurance company finally processed the

> claim correctly. And, about 2 weeks ago now, I received a refund

> check in the mail from the medical provider - surprisingly!

> My question is: This money should go back into my HSA account -

> correct??? I believe that I understand that if the bank is notified,

> they can mark my deposit in their system so that it is not included

> in the Form 5498-SA reporting for my 2009 contributions - which makes

> sense to me - otherwise, there would be, in theory, a distribution

> included on the 1099-SA that was actually NOT for a medical expense

> and subject to tax and penalty on my 1040. However, when I end up

> spending this money, I presume that it will be included in the Form

> 1099-SA that shows my distributions for the year - is this correct??

> I could potentially see my 5498-SA showing $3,000 for 2009 and my

> 1099-SA showing $3,000 plus this refund amount. Would that look

> funny or cause questions? Even though I have met my deductible for

> 2009 of $2,500, I still have out of pocket expenses for dental and

> eyeglasses that could easily eat up the $500 plus that could be

> available in the account for the year.

> I could see this scenario continuing on for me during the rest of

> 2009 as I have to pay for my prescriptions up front even though my

> deductible has been met and then wait for a refund from the insurance

> company. So, if I paid for the prescriptions from the HSA account

> and then got a refund .... it appears to me that the 5498-SA and

> 1099-SA reporting could get all screwed up if I am not on top of

> this. Or, am I just thinking way too hard about this? And, maybe I

> just have to leave it to the bank to screw it up and then try to

> convince them that their figures are wrong after they issued the year

> end forms?

> If anyone has any guidance for me, it would be most appreciated.

> Cathy H.

> Ellsworth, KS

See IRS Notice 2004-50 at:

http://www.irs.gov/irb/2004-33_IRB/ar08.html#d0e1614

See Q&A 37 about redepositing incorrect withdrawls (a similar
circumstance to yours), but also see Q&A 76, which indicates that the
trustee is not required to accept this redeposit.

Many HSA Custodians DO accept these redeposits, and often have a form
for this specific purpose.

HTH

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>