As explained previously, money from a Health Savings Account (HSA) can be used tax and penalty free for qualfied medical expenses. Documenting these expenses is important in case you are ever audited.
It may seem statements from your insurance company, or credit card statements, are sufficient. The IRS may accept these at their discretion, but they do not actually prove that the medical expense incurred was a qualified medical expense.
Statements from Your Insurance Company are Insufficient
This is a generalization - your situation may be slightly different. However, every single statement I've received from my health insurance company concerning expenses incurred has been an Explanation of Benefits (EOB), and every EOB has written in bold and all caps "this is not a bill."
An EOB is merely a statement that shows how much the medical provider billed the insurance company, and how much the insurance company paid the provider. It does not in any way document how much you actually paid. You could, for example, have received a bill from the hospital that agrees with the EOB, but then negotiated a discount for paying the entire bill up front in cash. Your HSA qualified expense amount is the amount you paid, including the discount—which is lower than the amount on the EOB.
Credit Card Statements Alone are Insufficient
Credit card statements only show that you paid a certain entity a certain amount. They do not prove what service you paid for. Remember, there are definitely medical expenses—particularly elective procedures, such as plastic surgery—that are not HSA eligible.
Would a credit card statement showing a charge for an amount that is equal to what is shown on the EOB be sufficient? Probably. But would I personally want to face an audit with only that amount of proof? No.
What Is Sufficient?
Your documentation should prove the following:
- How much you actually paid (EOBs don't count)
- What service(s) you received and/or what product(s) you bought
- In the case of services, who actually received the service (you cannot use HSA funds tax and penalty free for a friend)
- When the transaction ocurred (you need to have opened a HSA before you incurred the medical expense)
An itemized receipt from the health provider should document all of the above. If it doesn't, I'd ask them to provide you one. You may want to keep your EOBs as supplemental information to document the services you received if the receipts do not provide a verbose enough description.