Editorial Policy

Health debit cards: what to know before swiping

Allie Johnson

November 26, 2013

If you have a health savings account or flexible spending account to supplement your health insurance, it's easy to whip out the debit card that comes with it to pay for medical expenses such as bandages, doctor visits and prescription medications.

But these cards differ from other types of plastic — and taking the time to learn how they work can save you hassles and money.

What is a health debit card and who can get one?
Not everyone can get a health debit card. To get one, you need one of these three types of health care accounts:

  • Health savings account (HSA): You can open an HSA if you have a high-deductible health insurance plan, which in 2014 means a yearly deductible of at least $1,250 for one person or $2,500 for a family. Whether you have insurance through work or buy it on your own, this account lets you save part of your income before taxes to pay for some medical expenses, says Cody Dingus, director of marketing for HealthEquity, Inc., a company that administers health savings accounts. If you don't use all the money during the year, it stays in the account and earns interest. If you're shopping for insurance at HealthCare.gov or one of the state marketplaces created by the federal Affordable Care Act, the plans that qualify for HSAs should be clearly marked, says Beverly Gossage, a candidate for Kansas insurance commissioner and owner of HSA Benefits Consulting.
  • Flexible spending account (FSA): Only employees with employer-sponsored health insurance can open FSAs. FSAs also let you put aside money before taxes for certain medical expenses. But if you don't spend all of the funds in a given year, you lose the balance — except $500, which your employer can now choose to let you roll over to the next year, thanks to a new rule instated by the Treasury Department in October 2013. “You have to use it or lose it,” Dingus says.
  • Health reimbursement arrangement: This is an account set up by an employer to help employees pay for certain health expenses. These accounts are designed and funded by employers, so specifics vary, Dingus says.

A consumer usually gets a debit card in the mail after opening one of these types of accounts, Dingus says.

The rules
Do you plan to pull out your health debit card to pay for aerobics class, wrinkle cream or even your dog's vet bill? Don't do it: There are strict rules about how you can use the money in the account linked to your card.

The IRS, which makes rules for HSAs and FSAs, lists more than 80 qualifying medical expenses. They include acupuncture, artificial teeth, bandages, birth control pills, chiropractor treatments, eyeglasses, guide dogs, pregnancy tests, psychologist appointments, stop-smoking programs, transplants, vasectomies, medically necessary wigs, X-rays and more.

Over-the-counter medications also qualify with a prescription, Dingus says. “You can buy things like aspirin for a headache as long as you have a note from your doctor,” he says.

There's also a long list of prohibited items, such as babysitting, dance lessons, health club fees, hair transplants, maternity clothes, veterinary fees and weight loss programs.

“I get requests from all over the country saying, 'I have an HSA. Is it OK to use it for my yoga classes?'” Gossage says. “No, it is not.”

How to make the most of your health debit card
If you're careful, you can maximize your savings and avoid getting dinged with high fees or penalties. These six tips will help you use your health debit card wisely:

1. Don't pull out your debit card too quickly. When you're at the doctor or hospital, always show your health insurance card and ask the provider to bill your insurance company first, Gossage says. This way, you get the insurance company's lower, negotiated rate for the service and make sure the amount you do pay gets applied to your deductible. You can use your card to pay co-pays, however, if your plan has them, Gossage says.

“If you pay at the time of service, you'll be paying retail,” Gossage says.

However, some providers do try to collect a small percentage of the cost of service  — maybe $10 or more — from the patient upfront. In that case, it's fine to pay with your debit card, she says.

2. Know if your card is a “smart card” or not. Cards linked to FSAs — and in some cases, HSAs — often are “smart cards,” Gossage says. While a standard health debit card will let you buy anything from a pack of gum to a pair of jeans, even though you're not supposed to, a “smart card” can recognize which items are approved.

“If you go to use it for groceries, it won't let you,” Gossage says.

This technology can help prevent honest mistakes, Gossage says. But it also can prevent a consumer with a prescription from using the card to buy, say, an over-the-counter pain reliever or antihistamine. In that case, you might have to use another form of payment and reimburse yourself later, she says.

3. Remember to reimburse. It's pretty common to forget a health debit card at home or not have enough money in your account to pay for a service or item, Gossage says.

“Maybe you left the debit card at home and need to pick up a prescription for your daughter,” she says. “Or a wife needs the card, but her husband has it.”

Remember that you can reimburse yourself later from your account for a qualifying medical expense you paid for with cash, a credit card or a regular debit card (in other words, with after-tax money). “It doesn't matter if it's 10 years later,” Gossage says, if you haven't reimbursed yourself for that item and you have the receipts. You can get the money back via direct deposit into your bank account or by using your health care debit card to get the cash from an ATM, she says.

4. Check the fine print for fees. “Watch out for fees,” Gossage says. For example, HSA Bank's fees include: $2 for an ATM withdrawal, $2 for making a purchase with a PIN (choosing “debit” and entering a PIN instead of choosing credit and signing a receipt), $12 to replace a lost or stolen debit card and $30 for insufficient funds. And HealthEquity charges a monthly maintenance fee $3.95 if you have a balance of less than $2,500, Dingus says. If you don't like the fees, you can shop for a different HSA, Gossage says, especially if you buy your health insurance on your own. Employers often use specific companies, however. Gossage recommends checking with your local bank to see if it offers HSAs.

5. Keep it separate from other cards. It's an easy mistake to make: You go to pay for Chinese takeout or a haircut and accidentally pull out your health debit card. To avoid errors, it's smart to keep the card separate from other plastic, Dingus says. If you do use your card for something that's not a qualifying medical expense, and you don't reimburse the account, you can get hit with income tax on that amount plus a 20 percent penalty, Gossage says.

6. Save your receipts. It's always smart to save your original receipts for all purchases made with your health debit card (or from your HSA or FSA by check), Gossage says. Or, you can save them electronically: HealthEquity offers the option of scanning or taking a photo of a receipt and uploading it to your account for safekeeping.

“If you ever get audited by the IRS,” Dingus says, “you'll need to supply back-up.”