An important part of arranging a medical procedure abroad is determining how to pay for it. Previously, we covered 6 different methods of financing a healthcare procedure. This time, we’ll discuss another option: using a tax-advantaged medical account such as an FSA, HSA or HRA.
These three types of heath savings accounts can all help pay for qualified healthcare expenses and provide an opportunity to save money on taxes. There are some important distinctions between them though, as well as details to keep in mind when using them to pay for a procedure abroad.
So let’s dive in with a quick comparison of FSAs, HSAs and HRAs, and some tips for using each for medical travel.
A flexible spending account (FSA) is a pre-tax benefit account that can be used to pay for eligible out-of-pocket medical, dental, and vision expenses.
- This type of account is a standard benefit commonly offered by big employers
- Employees pre-select an amount to set aside into the FSA at the beginning of each year and don’t need to pay taxes on that amount
- The full allocated amount is available immediately, even though equal contributions are taken out of the paycheck each month
- The allocated amount does not rollover at the end of the fiscal year – FSAs run on a “use it or lose it” basis
Tips for using an FSA for medical travel:
- Patients can use FSA funds to pay for medical expenses abroad, but only services that are considered legal in the US qualify
- Call the FSA provider before leaving the US to confirm eligibility and get a list of all items that are eligible
- Patients will need to pay for the expense upfront and then file for reimbursement upon return to the US
- Make sure to hold on to all receipts!
- Prescriptions bought abroad can only be reimbursed if the FDA deems they can be legally imported (guidelines here)
A health savings account (HSA) is like a 401(k) for healthcare, providing an option to save up for future healthcare expenses and build a healthcare nest egg with low-cost investment options.
- This type of account is much less common than an FSA
- It’s only available to those who are enrolled in a high-deductible health plan (HDHP)
- Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Employers may also set up a plan for employees as well
- Employees select a portion of their salary to contribute to their HSA each month, which is taken out pre-tax – the available balance is how much has built up over time from savings as well as investment returns
- The amount in the account never goes away unless spent – employees can use them to pay for future expenses down the road and take the account with them when they switch jobs
Tips for using an HSA for medical travel:
- The amount withdrawn from an HSA to pay for international medical care can be taken out tax-free
- Expenses are eligible if the reason for travel is “medical care not for personal reasons”
- The minimum withdrawal amount is generally $25, but can vary depending on the account administrator
A health reimbursement arrangement (HRA) is an IRS-approved, employer-funded and tax-advantaged benefit to reimburse a portion of eligible out of pocket expenses and individual health insurance premiums.
- Only the employer can make contributions to the account
- Money can accumulate without a maximum cap as long as employees stay in the same health plan
- Funds can pay for qualified medical expenses that don’t count towards the deductible, the health plan’s deductible, and Medicare premiums
- Funds can roll over to the next calendar year, but cannot be taken with employees when they leave their company
Tips for using an HRA for medical travel:
- Eligible expenses are defined by IRS rules and the employer’s plan – generally, medical care includes items and services meant to diagnose, cure, mitigate, treat or prevent illness, as well as transportation primarily for medical care
- Ineligible expenses (not approved for reimbursement) include:
- Cosmetic surgery and procedures, including teeth whitening
- Herbs, vitamins and supplements used for general health
- Over-the-counter medicines without prescriptions (except insulin)
- Family or marriage counseling
- Personal use items like toothpaste, shaving cream, makeup
- Prescription drugs imported from another country
- Expenses reimbursed by another plan or program, including a health care plan
Enrolling in an FSA, HSA or HRA can help patients save money by lowering the amount they have to pay in taxes. All three of these accounts can be utilized to pay for health care costs, even overseas.