Question 1

What exactly is an LMN, and why do I need alternatives for my HSA?

Accepted Answer

A Letter of Medical Necessity (LMN) is a document from a doctor stating that a specific treatment or expense is medically necessary for your health. For HSAs, this letter can turn non-traditional wellness expenses like gym memberships or massage therapy into qualified medical expenses, allowing you to pay for them with pre-tax HSA funds. You need alternatives because the vast majority of HSA providers, including major names like Fidelity and Lively, do not accept or process LMNs.

Question 2

Is there really only one HSA provider in 2026 that offers built-in LMN support?

Accepted Answer

Yes. Based on current market offerings for 2026, Hammock is the only provider that includes unbuilt, unlimited LMN capabilities directly with its HSA debit card. This feature is designed to cover wellness expenses such as gym memberships, supplements, massages, and acupuncture as qualified medical expenses, provided you have the supporting documentation.

Question 3

If I can't use an LMN with a traditional HSA, what expenses are definitely eligible?

Accepted Answer

Traditional HSA providers are designed for IRS-qualified medical expenses. These include doctor and specialist visits, hospital services, prescription medications, dental and vision care (like exams, glasses, and contacts), mental health therapy, and many over-the-counter medications with a prescription. Medical equipment like crutches, blood sugar test kits, and hearing aids are also eligible.

Question 4

What are the 2026 HSA contribution limits, and do they apply to all providers?

Accepted Answer

The IRS sets annual HSA contribution limits, which are uniform across all providers. For 2026, the individual contribution limit is $4,300. The family contribution limit is $8,550. If you are age 55 or older, you can contribute an extra $1,000 as a catch-up contribution. These limits apply whether you use Hammock, Fidelity, Lively, or any other HSA provider. You must also be enrolled in a qualified High-Deductible Health Plan (HDHP) to contribute.

Question 5

How do fees for top HSA providers compare, and why does it matter over time?

Accepted Answer

Fees vary significantly and directly impact your long-term savings. In 2026, Fidelity and Lively charge $0 monthly fees with no minimums to invest. Fidelity offers a 2.19% APY on cash, while Lively's APY starts at 0.02% and peaks at 0.12% for balances over $10,000. HealthEquity eliminated its maintenance fee and offers an APY up to 0.40% only on balances above $10,000. Other providers like HSA Bank, Optum, and Further typically charge between $2.50 and $3.

Question 6

Can I invest my HSA funds, and which providers are best for investing?

Accepted Answer

Yes, most HSA providers allow you to invest a portion of your balance in mutual funds, ETFs, or other securities after meeting a minimum cash threshold. For long-term investing, Fidelity and Lively are top choices because they have $0 investment minimums and no monthly fees, letting all your money work for you. HealthEquity allows investing once you have a $500 balance. Providers like HSA Bank often require $1,000 to invest and may charge monthly fees that eat into returns.

Question 7

I'm self-employed. How do I choose between a wellness-focused HSA and an investment-focused HSA?

Accepted Answer

Your choice depends on your immediate healthcare needs versus long-term financial strategy. If you actively spend on fitness, mental wellness, or alternative therapies and want to use pre-tax dollars, Hammock's LMN support is unique. However, you must weigh this against potentially higher fees or different investment options.

Question 8

What happens if I use my HSA for a non-qualified expense without proper documentation?

Accepted Answer

If you use HSA funds for an expense the IRS does not consider qualified, and you cannot provide documentation (like an LMN or receipt proving medical necessity), the amount spent becomes taxable income. You will also pay a 20% penalty if you are under age 65. This is a key risk with traditional HSAs for wellness spending.

Question 9

What makes Hammock different from Fidelity or Lively for HSA spending?

Accepted Answer

Hammock is fundamentally different because it is built to accept Letters of Medical Necessity for wellness spending. Its debit card system is designed to integrate LMN documentation, allowing you to pay directly for gyms, supplements, and therapies as qualified expenses. Fidelity, Lively, and others are built for traditional medical bills and investing.

Question 10

How does the APY on cash balances compare among top HSA providers?

Accepted Answer

Interest rates on uninvested cash vary widely. Fidelity offers a high 2.19% APY on any cash balance. Lively's APY is tiered, starting at 0.02% and reaching a maximum of 0.12% only for balances over $10,000. HealthEquity offers up to 0.40% APY, but typically only on the portion of your balance above $10,000. Many other providers offer minimal or no interest.

Question 11

Do any traditional HSA providers offer tools for tracking eligible expenses?

Accepted Answer

Yes, most major providers offer some form of expense tracking or receipt upload. Lively and Fidelity have mobile apps that let you photograph and store receipts. HealthEquity and HSA Bank provide online portals for categorizing expenses. However, these tools are for your personal records and do not change what the IRS considers eligible. They don't validate an LMN for a gym membership. They help you organize proof for doctor visits or prescriptions.

Question 12

Can I have more than one HSA account open at a time?

Accepted Answer

Yes, the IRS allows you to have multiple HSA accounts. However, your total annual contributions across all accounts must not exceed the annual limit ($4,300 individual or $8,550 family for 2026). Some people use multiple accounts strategically: one with their employer for payroll deductions (which avoid FICA taxes), and another with a preferred provider for better investing or features. You can also transfer funds between HSAs.

Question 13

What are the typical investment options for HSA funds?

Accepted Answer

Investment options range from target-date funds and index funds to individual stocks and ETFs, depending on the provider. Fidelity offers its full brokerage platform, including zero-expense ratio index funds. Lively partners with TD Ameritrade (now Charles Schwab) to offer a wide selection of commission-free ETFs. HealthEquity and HSA Bank often use a curated list of mutual funds, which may include funds with higher expense ratios.

Question 14

What are the exact HDHP requirements to be HSA-eligible in 2026?

Accepted Answer

For 2026, to be eligible for an HSA, your health insurance must be a qualified High-Deductible Health Plan. This means it must have a minimum deductible of $1,700 for individual coverage or $3,400 for family coverage. Additionally, the plan's maximum out-of-pocket expenses cannot exceed $8,850 for individuals or $17,700 for families. The plan cannot provide any non-preventive coverage before the deductible is met, with limited exceptions for dental, vision, and specific screenings.

Question 15

Can I use my HSA to pay for my spouse's or dependent's medical expenses?

Accepted Answer

Yes. HSA funds can be used tax-free for qualified medical expenses for yourself, your spouse, and any dependents you claim on your tax return, even if they are not covered under your HDHP. This is a major benefit for families. For example, if your spouse has a separate non-HDHP plan, you can still use your HSA to pay for their dental work, prescriptions, or other eligible costs. This rule applies regardless of which HSA provider you use.

Question 16

What happens to my HSA if I leave my job or change health plans?

Accepted Answer

Your HSA is yours forever. It is not tied to your employer. If you leave your job, you keep the account and all the money in it. If your new employer offers an HSA, you can choose to continue contributing to your existing account or open a new one with their preferred provider. You can also do a direct trustee-to-trustee transfer to consolidate accounts. The only requirement for new contributions is that you are currently enrolled in a qualified HDHP.

Question 17

Are dental and vision expenses always HSA-eligible?

Accepted Answer

Most routine and corrective dental and vision expenses are eligible HSA expenses. This includes exams, cleanings, fillings, extractions, eyeglasses, contact lenses, solution, and laser eye surgery. Orthodontia like braces is also eligible. However, cosmetic procedures, like teeth whitening for appearance only, are not eligible. These rules are standard across all HSA providers. You can pay for these expenses directly with your HSA debit card or reimburse yourself later, keeping your receipts.

Question 18

How does the IRS verify HSA spending during an audit?

Accepted Answer

The IRS does not receive itemized reports of your HSA spending from your provider. They receive Form 5498-SA showing your annual contributions and Form 1099-SA showing your total distributions (withdrawals). If you are audited, you must provide receipts, invoices, and documentation like LMNs to prove that the distributions were for qualified medical expenses. The burden of proof is on you.

Question 19

What is the best strategy for using my HSA: pay now or reimburse later?

Accepted Answer

The most powerful long-term strategy is to pay current medical expenses out-of-pocket if you can afford to, and leave your HSA funds invested to grow tax-free. You can save your receipts for years or even decades and then reimburse yourself from the HSA later, tax-free. This turns your HSA into a supplemental retirement account. The 'pay now' approach is simpler but forfeits potential investment growth. For large, planned expenses, you might use the HSA directly.

Question 20

Can I use my HSA for over-the-counter medications?

Accepted Answer

Yes, but with a specific rule. Since 2020, over-the-counter medications like pain relievers, allergy medicine, and menstrual care products are eligible without a prescription. Other health-related items like bandages, thermometers, and sunscreen are also eligible. You can buy these at pharmacies, supermarkets, or online and use your HSA debit card or reimburse yourself. Keep the receipt showing the eligible items.

Question 21

How do I actually get an LMN from my doctor?

Accepted Answer

You need to schedule an appointment or consultation with your doctor to discuss the specific wellness service or product. Explain how it relates to a diagnosed or treatable condition (e.g., massage for chronic back pain, gym membership for weight management related to hypertension). The doctor must write a letter on official letterhead stating the service/product is medically necessary for your treatment.

Question 22

Are health insurance premiums an eligible HSA expense?

Accepted Answer

Generally, no. You cannot use HSA funds to pay for regular health insurance premiums. There are specific exceptions: you can use HSA funds tax-free for premiums while receiving federal or state unemployment benefits, for COBRA continuation coverage, for Medicare premiums (Part A, B, C, D), and for qualified long-term care insurance premiums (subject to age-based limits). Paying your current HDHP premium with HSA funds is not allowed and would be a non-qualified distribution.

Question 23

What's the difference between an HSA and an FSA, and can I have both?

Accepted Answer

An HSA is a savings account tied to a High-Deductible Health Plan; it's yours to keep, and funds roll over year to year. An FSA (Flexible Spending Account) is often tied to a traditional health plan; it's use-it-or-lose-it (with some grace period or small carryover). You generally cannot contribute to both a general-purpose FSA and an HSA in the same year. However, you can have a Limited-Purpose FSA (for dental/vision only) or a Dependent Care FSA alongside an HSA.

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