Health Savings Account Record Keeping

Documenting HSA Activity

There are two primary reasons for keeping good records of your Health Savings Account (HSA) activity:

Measuring and evaluating your medical expenses helps you in identifying ways to reduce these expenditures.
You're accountable to the IRS. If you're audited, you may need to provide a reconciliation between your HSA withdraws and your qualified expenses.

Measuring Your Health Care Costs

Knowledge is power. When you measure your health care costs, you're better able to identify less costly alternatives, or recognize unnecessary expenses. Good data will help you ask the right questions that make you a wiser consumer, leading to more effective health care spending.

Some examples:

Are you purchasing the same retail prescription each month? If so, you'll probably save some money by using your plan's mail order prescription benefit. Or you may be able to save by changing to another drug store. Prescription drug costs can vary significantly by retailer, and pharmacies are typically cooperative in providing cost data to comparison shoppers.
Is there a generic equivalent for your brand name prescription? Discuss it with your doctor.
Are you incurring excessive emergency room charges? Urgent care centers are often a more economical alternative. Look for urgent care centers in the area where you live.
Health care cost transparency is becoming a reality. You may be able to compare area physician and hospital charges via your insurance company's website.
Your insurance company wants to do all it can to help you minimize your out-of-pocket costs. Check the insurer's website for other potentially helpful online tools.

Reconciling Expenses and Withdraws

Withdraws from your HSA are not taxed so long as they're used for qualified expenses, which are defined by the IRS (http://www.irs.gov/pub/irs-pdf/p502.pdf).

If you're ever audited, you may need to demonstrate that all your HSA withdraws have been used for qualifying expenses. So we recommend you save the following documentation:

Regular Statements from your HSA Administrator
Your HSA Administrator will provide you regular statements detailing and summarizing your deposits and withdraws.
Your Insurer's Explanation of Benefits (EOB) Statements
Each time your insurance company processes a claim, they generate an Explanation of Benefits (EOB) form. The document may be mailed to you or it may be accessible via the insurer's website. EOBs provide a definitive record of your qualified expenses for services covered by your health insurance plan.
Documentation of Non-Covered Expenses
You can use your tax-advantaged HSA funds for many services not covered by your health insurance plan. Dental and vision care expenditures are examples. You should keep receipts for these services and organize them by calendar year, maintaining a running total. You don't need sophisticated software tools to do this. You can organize the receipts in a single folder and track running totals on a sheet of paper.

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