Help a Reader: Gaming an HSA

Here's a comment/question/idea left by a reader on my post titled Using Your Health Savings Account as a "Super Roth" Investment Vehicle:

I am back with what I would think is a controversial idea. Today I got a check from a medical service provider with a substantial amount stating that I had paid more than what I needed. I think they had sent out several bills including more than one time for the same service. I paid them all using funds from my HSA account. They realized that I had paid more than what was required. So, they sent me back a check for the amount that I overpaid. Good so far. The problem I have is that now I have this check (that is basically money coming out of my HSA account) that I can easily deposit into my regular checking account and use for anything without paying any penalty or anyone asking any question about it.

Here is my idea (and want to find out if it is really legal) - Send an amount more than what is required to medical service providers and receive money back (penalty and question free) that one can use for any reason (free pre & post tax money).

So, if I want to withdraw $100 from HSA account to help me buy a few DVDs, then I will send out a check to my medical service provider that will exceed the amount by $100. Later on, I should receive a check from my medical service provider for $100 that I am free to spend on anything. Is is really that simple? What do you think?

So, what do you think?

Comments

[Rick]

Its all good until you get audited. You need receipts to match the amount you have withdrawn from the HSA. Don't do it.

[Kimberly]

Nope. I would count it as a reimbursed medical expense. So when he goes to file his taxes, on his form 8889, line 15, he should NOT include any of the expenses that were reimbursed by this overpayment. This will cause him to have to pay taxes on this check, thus negating his little scheme.

Sure, he can not tell anyone otherwise and risk audit at a later date. But (a), I wouldn't mess with the IRS, and (b) whatever you take out of the HSA loses the possibility of tax-free growth.

[Josh]

Sounds to me like a way of using easy tools at your disposal for tax evasion. I am certainly not an accountant but I feel like you would have to declare any amount you received back as taxable income at that point. Taxes are all on your own honor (until you get audited) so to me you would have to be honest and declare that returned money as income. Am I wrong?

[rwh]

It's probably illegal. I know with my flex credit plan at work if I accidently overpay and get a refund, I'm obligated to report it to my benefits administrator. They remind us clearly each year that such activities as the poster described are a violation of IRS rules.

[Trefisna]

Ethics! This is why we are in this financial mess. HSAs generally work very well, and trying to 'game' the system in such a petty way makes no sense. Instead, focus on making more money on your investments, working harder, and not spending too much.

[Angie]

Why did you even waste every body's time?

[Traciatim]

It' fraud, plain and simple.

[spivey]

Why don't you just get to know your doctor, and have them bill you for procedures that never happened. Then, you can pay for them out of your HSA, and split the tax savings between you and the doctor, and no one's the wiser. That way, you can do it with a lot more money than $100 here or there. Awesome plan.

[IRS agent]

If you have to "game the ASA system" to buy DVDs, then you probably shouldn't even be buying DVDs. In additon, IF you should be audited and it is discovered that you intentionally "gamed the system" it is possible the penalties could well offset whatever benefit you think you might garner by "gaming the system". I suspect that if you would try this scheme that it would not be a one time event, which might further increase the chance that you would be found out??

Why do people want to screw-up a benefit just to buy DVDs or whatever other items which one should be able to afford out of their own pocket?

If one would put their mind to work on legitimate, honest ideas, and just do the right thing, the entire world would be a better place.

[george]

Sounds like a good idea to me.... A good way to get back at our socialist government!

[My Life ROI]

Another April Fools day joke I hope?

[Walden]

Integrity is worth more than any amount of money. don't do it.

[Anonymous]

The HSA is a George W Bush right-wing scheme to force people to pay more for their health care by driving more poorly spent money into inefficient private sector healthcare firms that have 7 times the overhead of Medicaid and much lower life expectancy outcomes than other advanced countries' medical systems.

But as bad an idea for our country the HSA is, that doesn't give you license to cheat the government.

[Tim]

My advice is to see if Obama need anyone to fill a cabinet position. If so, you would be a great candidate.

[nickel]

What Rick said. You're just begging for an IRS smackdown if you do this and get audited.

[Brad]

"The HSA is a George W Bush right-wing scheme to force people to pay more for their health care"....anonymous, of course. That is laughable.

I think Tim hit the nail right on the head. Apply for a job as a politician and as long as you work in the Dem Party, you should be praised for your dishonesty.

What a stupid plan!!!

[Christine]

Just use netflix. You can get anything you want for $8.99 a month. It's also legal. No need to buy dvds you are going to watch once and dust for 5 years.

[SAHM]

Besides the whole ethical/legal debate, how many of your doctors, etc actually send you a check for overpayment? I always have to call to fight if there is a credit on my account to get them to send me the money back. Most of the time it appears on my account as a credit "until I need it".

[George]

how many ways can you say "fraud"?

[CitizenKnow]

this tactic is a perfect example of what is wrong with the current system... health care providers are being swamped with paperwork. Its going to take ethical people to get us out of this... multiply this HSA scheme by hundreds of thousands and you are talking real $, and it will play right into the hands of statist politicians who wish to nationalize health care.

[Kermet]

Plus, if the IRS does start auditing HSA account transactions and find this is a recurring problem, then Guess What?!! New regulations, hoops to jump thru for the honest users of these accounts. It is people like you that causes problems for us trying-to be-honest folks. Maybe you should take an ethics course at your local university.

[Strick]

Sounds like a plan you will most likely get away with, but don't confuse that with it being legal. Next you can take some stuff down to your local Salvation Army, fill out the do-it-yourself receipt with 10 times as much stuff as is really in those garbage bags, and claim that deduction next year, also something you'll almost assuredly get away with....this is a pretty lousy April Fools joke...

[Corporate Barbarian]

Bad idea. It's not worth the hassle if you get caught, from the IRS or your employer. Your company might fire you to set an example to others. Then there's the ethics question. Do you really want to be looking over your shoulder for such a small return?

[Harshad]

Well Sanjeev you can come up with a lot of this different ideas, but remember, that the hospital may send you a 1099,
or may never return your money.
And if the IRS finds out that people are doing things like this, you may end up with Madoff in the adjoining cell,
for a few $. All the calculations you and Shard are coming up, doesn't amount to much if you try to maximize your income and you pay the top Tax $.

[Scott]

C'mon. You're making this up. Somebody really asked this question?

[Sanjeev]

I am the one who submitted the original question. I am very amused to see many calling me trying to attempt a fraud (even when my intention was to find out if it was legal). It figures that my idea is not legal. The reality is that I called the bank that has my HSA account, explained them the situation and deposited my refund with them back into my HSA funds. It will not be counted as a contribution for this year. so it all worked out great.

What I find surprising is that my attempt to see if I can sneak $100 tax free annoys FMF readers to the degree they start calling me fraud. But, many of the top executives, CEOs, government officials, etc are doing their best to come up with new schemes, laws, and bills to take away our hard earned money with great ease and we have no means of demonstrating our protests as a united front and be able to take preventive measures. Worse, many of us think that did not attempt any fraud because everything was done within legal boundaries. of course, they could. They have got big team of lawyers to take care of such trivial issues. I don't have the luxury of having legal team available to you, so I went to FMF readers who, of course, are a bunch of honesty freaks (that includes me - but I am really beginning to challenge my own definitions of what defines morality and legality in this country).

People like me work bloody hard to earn money so that there is food on the table for family. Even then we don't ever get to see a good chunk of our money because we pay taxes as we earn. You see we have such a beautiful tax system. We have to figure out how much taxes we will owe even when we don't know how long we will keep our jobs. Our government has created a taxation system that runs more than 68000 pages and yet, we, as an ordinary bunch of people with millions of other things to do is to figure out all the laws and abide by that with no free help from government or anyone. Nobody takes our opinion into account when creating/amending new tax laws, yet we get stuck with the whims of few people who end up writing these laws and it becomes our moral responsibility to follow those laws. What a cooky system this has turned out to be.

At a minimum, I wouldn't like to pay taxes as I earn. Instead, if I earn $100,000 in a year, I would really like to get $100,000 (not some post-tax $70,000) by 12/31 and then figure out my net tax liability and make a lump-sum payment. That way, I truly get the income in my hand that I really earned and I can calculate my taxes clearly at the end-of-the-year and pay it out. Also, it gives me the real true chance of utilizing my $100,000 for a year. That will be a nice change for a start.

And yes, if we can do away with so many 401k,IRA, Roth IRA, HSA, FSA, MSA, 457, SEP, etc and instead have only one retirement account type that every one (with no income restrictions - everyone deserves a rich retirement) has access to with very simple rules around it, I will not be posting a HSA question on FMF about what to do with $100 refund.

I really wish it was that simple.

[ha!]

pwnd!