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Health Care Savings Programs

With the increasing cost of health care, many people are looking for ways to save money on their health care plans. Plans with higher deductibles offer lower premiums. Health Care Savings Accounts and Flexible Spending Accounts are two types of arrangements that allow people to save money in tax-advantaged accounts to pay for health care expenses. Although they have similarities, these plans work in different ways.

  1. Flexible Spending Plans

    • Flexible Spending Plans are provided through your employer to allow you a way to set money aside to pay for health care-related expenses, such as deductibles and co-pays. These plans have a yearly contribution limit. You can only enroll in a flexible spending account during your plan's open enrollment period. Once the plan's open enrollment period is over, you must maintain the same enrollment status throughout the year unless you have a change in family status, such as marriage or divorce.

    Use It Or Lose It

    • You must use the balance of a Flexible Spending Account by the end of the plan year. If there is any money left over, your employer is allowed to keep that money. However, you can also withdraw the amount up to your total annual contribution the day after your plan year begins. If you contribute $50 per week, your annual contribution would be $2,600. The day after the plan year begins, you may submit for a reimbursement for $2,600, even though you have not contributed that amount to your account at that time.

    Health Savings Accounts

    • A Health Savings Account is used in conjunction with a high deductible health plan. An HSA allows you to save money before taxes to help pay for health care expenses that are either not covered by your plan, or are not paid because you have not met your deductible. You can either pay for these expenses with a check or debit card, or you may submit receipts for reimbursement, depending on what your plan allows. You may contribute up to $3,050 per year for individual coverage, and $6,150 for family coverage for 2010.

    HSA Long-Term Savings

    • Unlike the Flexible Spending Account, an HSA does not have the use it or lose it provision. Any money that you do not spend during the year will stay in the account to pay for future health care expenses. You can invest the accumulated savings in your HSA account in many different types of investments, the same way that you would invest an IRA. At age 60, your HSA account is treated like a regular IRA, and you can withdraw money for any purpose without penalties, only paying the taxes. Withdrawals before age 60 for non-health care-related expenses are subject to a 10 percent penalty as of 2010, plus applicable taxes.

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