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3 mary batesHealth Care Reform has been a hot topic lately, and hearing the acronym HSA when talking about health insurance may have you confused, so what exactly does this mean? HSA stands for Health Savings Account.

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It is frequently confused with FSA (flexible savings account), but it is not the same thing and has far more benefits. Both types of savings accounts are funded with pre-tax dollars or tax deductible dollars used for qualified health expenses, but HSA money is not a "use it or lose it" benefit like a FSA. Actually, you can roll any money in your account forward with a HSA. Additionally, unlike a FSA, you can also take your money with you if you leave an employer sponsored HSA. A Federal tax rule with a HSA is that a person must have a compatible HDHP (high deductible health plan) in place in order to fund their HSA account, and any savings accumulated over the years, can be used for qualified medical expenses until the account is depleted. In other words, it can also be a nice nest egg for post-retirement, as it can be used for miscellaneous medical expenses including long term health care.

Like a FSA, HSA funds can be used for other medical expenses in addition to the cost sharing in the health plan. Things like glasses, prescription sunglasses, lasik surgery, dental services, acupuncture, and fertility treatment, to name a few. Preventive care is still covered and paid for by the insurer, so you do not need to spend your savings on these items. However, every other type of covered medical service that is covered would be subject to a deductible first, before the insurance company begins paying. Some HSA health plans also have coinsurance (80/20) in their plan design, in that you pay 20% of expenses after the deductible is met to an out-of-pocket maximum. By the way, it's up to you to spend your HSA monies as you wish, whether you pay for things out of your pocket or your HSA account. You decide when to pay for medical expenses out of your HSA account.

Finally, you can save quite a bit with this tax-free approach. First, you can reduce your taxable income which reduces federal, state, and FICA taxes. Second, the money in a HSA can be saved or invested tax-free, and third, the money can be taken out before and after age 65 without penalty, as long as it's used for medical expenses. For group health plans, employers may or may not (not required) contribute money towards their employee's HSA accounts, and if they do, it is another tax deduction. Legislators see this as a positive and prudent approach to managing health care expenses, putting the consumer in the driver's seat and controlling costs. For more information on HSA plans, please contact us at us at your convenience.

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