How to navigate unexpected medical expenses

It’s important to set savings goals and plan for the future, but sometimes things don’t go as expected. You might, for example, incur a large, unanticipated medical expense that you can’t cover with your current Health Savings Account (HSA) balance. So, what can you do?

You may still be able to use your HSA to navigate this situation. Let’s take a look at an example that illustrates the steps you can take to cover large expenses with your HSA—while also taking advantage of potential tax savings.1


Last January, you began contributing $50 per month to your HSA and didn’t make any withdrawals, so by the end of the year your balance was $600.

Just after the first of the year, you end up needing an emergency appendectomy and your health insurance plan deductible is $2,400—which is more than the money you have on hand to cover the expense. Here is one way you can handle it:

Use the $600 in your HSA on your $2,400 deductible, leaving a $1,800 bill.

Arrange a payment plan for the $1,800 bill ($300 per month for six months).

Change your HSA contribution to $150 per pay period to cover the $300 per month payment plan. Remember, the amount by which you increase your contributions can be offset by the additional savings on payroll taxes.1

Use your HSA debit card2 to pay the monthly bill.

If your medical provider doesn’t offer a payment plan, you could use your credit card to pay your medical bill and then increase your monthly contribution like in the above example and reimburse yourself monthly from your HSA.
Note: you can only reimburse yourself for the medical expense and any credit card interest is not reimbursable.

Build your HSA balance to prepare for future expenses

Unexpected medical expenses are bound to come up—and contributing to your HSA is one of the best ways you can be prepared. Work on building your health care savings through a contribution strategy that works for you. Using these strategies, your HSA can be a great resource if you ever face a large medical expense.

1Potential Tax Advantages: You can receive federal income tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax, unless an exception applies. Any interest or earnings on the assets in the account are federal income tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA directly (not through payroll deductions). In addition, HSA contributions may reduce your state income taxes in certain states. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA

2This HSA debit card program is issued by Bank of America, N.A. Visa is a registered trademark of Visa International Service Association, and is used by the issuer pursuant to license from Visa U.S.A. Inc.

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice.

State and/or local income tax treatment of payroll contributions may vary. Participants may wish to consult with a tax advisor regarding the state income tax treatment of such contribution.