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Alternatives to an HSA

A health savings account, or HSA, provides a way for consumers to put money aside to for medical bills not covered by insurance,co-pays or other certain health care costs. The money invested in the HSA is tax deductible, so consumers can lower their overall costs and reduce their tax bills at the same time. But, if you are not eligible for an HSA or simply prefer not to use one, you do have a number of alternatives.

  1. Flexible Spending Account

    • You can set up a flexible spending account through your employer during the annual open enrollment period. The money in the flexible spending account can be used to pay for medical expenses for yourself and any dependents, just like the money in an HSA. One major downside of the FSA, however, is that the money must be used by the end of the year. With an HSA account, on the other hand, you can roll the remaining funds over from year to year, and even use the money for non-medical expenses after you reach age 65.

    Health Reimbursement Account

    • Some companies will set up HRAs, or health reimbursement accounts, for employees who choose a high deductible health plan over traditional coverage. The premiums for high deductible plans are generally much lower, both for the employer and the employee, but many workers balk at the high deductible. Employers can fund an HRA that covers part of the deductible and therefore encourage workers to accept the cheaper plan. The money remaining in an HRA at the end of the year can be rolled over, providing the employee opts to remain in the high deductible plan for the coming year.

    Personal Savings

    • Consumers are free to save for medical costs on their own by setting up a bank account solely for this purpose. This is similar to the process of building an emergency fund. If no large medical expenses are encountered during the year, the money can continue to grow until it is needed. The downside of this approach is that the money invested in the savings account is post-tax money. There is no up front tax benefit like there is with a health savings account.

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