Recently, my wife went to the chiropractor, and after the treatment went to pay the attendant. She told the clerk that we had an HSA, and would be using that. The clerk immediately said, "Right, you need to use it before the end of the year or forfeit the savings." Needless to say, this garnered an emergency call to me at work to tell me that our HSA would expire at the end of the year.

Now I know a Health Savings Account doesn’t expire, which is one of the wonderful things about it, so I’m assuming that the clerk (who works in a medical office remember) must have mixed this up with a Flexible Spending Account which DOES forfeit any unused money at the end of the year. If it’s that easy for someone dealing with medical billing on a daily basis to confuse, I imagine it’s pretty difficult for normal everyday people to keep all the different accounts straight too.

So, What’s the Diff??

A Health Savings Account (HSA), is an additional account that is offered for those that have a high-deductible health insurance policy (generally at least $1500 for individuals and $3000 for families). This HSA provides many different benefits that are attractive to those individuals and families that don’t have too many health related expenses.

HSA Good Points

• Smaller Insurance Premiums – Insurance policies with high deductibles, generally have much smaller payment premiums. Some have up to the maximum allowed ($5420/year/family) before they pay ANY money. At first it sounds like a lot, but if you take a look at how much you spend on doctor visits and medicine in a year, many people don’t even spend that much. Paying high premiums for insurance you never use is a waste.

• Deposits to an HSA are Pre-Tax – A family can put a maximum of $5420/year into their HSA account. All payments into an HSA can go in pre-tax (depends on your job) and can stay there forever, or be withdrawn tax-free for medical expenses. (As Borat would say, "Niiiiice".)

• HSA Money can be Invested – Once money is put into the account, it acts like a typical IRA. It can be invested in various stocks, bonds, mutual funds, or other investment vehicles. You can think of this as your "Health IRA". If you build it now, when you’re healthy, and let the wonderful COMPOUND INTEREST do it’s magic over the years, you could have hundreds of thousands of dollars in your later years for those growing health expenses.

• Personal Responsibility – Because the individual is responsible for paying out-of-pocket or from the HSA account for the first $5400 of medical expenses, most people will ’shop around’ some and try to get the best deal for their money. Not all doctors charge the same, and not all service is worth the money. Competition causes price reductions. I’m not in favor of driving doctors out of business, but I’m also not too fond of financing that third house in the Bermudas either. Many people that have comprehensive insurance go for the ‘carte blanche’ approach; Since I’m not paying for it, I’ll take EVERYTHING you’ve got. Tests, exams, x-rays, DNA analysis, full body Nano-structure comprehensive bio-analysis and mutological/pathogenalogical exam, etc. This drives up the overall cost of insurance, as the insurance companies pass these costs off to the general population through increased premiums. Remember; the insurances companies are a BUSINESS. They aren’t here to LOSE money, but to MAKE money.

Now, in comparison, a Flexible Spending Account (FSA) is a different type of beastie. Originating before the HSA, the FSA resembles it somewhat. Flexible Spending Accounts were originally created to address some of the same issues as the HSA, but because of legal considerations, couldn’t go as far as the HSA.

Differences Between FSA and HSA

• No Insurance Needed - Because this is a ‘Spending’ account, it isn’t actually tied to a health insurance policy like the HSA. You can have a FSA without any health insurance if you wanted to.

• Covers Medical AND Child-Care Expenses – The FSA can be used for both medical expenses and child care expenses, whereas the HSA is only for medical.

• Use it or Lose it – You can select any amount (up to a certain percentage, determined by your employer/IRS) and have that amount automatically deposited into the account, but if you don’t USE it by the end of the year, any remaining funds are lost. (The company offering the FSA gets to keep it).

FSA Good Points

• Deposits to an FSA are Pre-tax - Like the HSA, deposits into an FSA can be made before tax is take out of your pay, reducing your overall tax burden.
• Covers Medical Procedures Insurance Doesn’t – Many health insurance plans won’t cover ‘voluntary’ surgeries (lasik eye surgery, plastic surgery, etc). The FSA doesn’t differentiate between voluntary and mandatory medical. Many people can negotiate a flat-fee for procedures, then have this amount taken into their FSA account and then on to the doctor/medical practitioner. That way, you save some money and reduce your taxes. (Note: HSA accounts can also do this, but since you’re only limited to $5400/year putting INTO the account, it might be better to leave the money there to grow and use the FSA instead.)

Both HSA’s and FSA’s have their places and roles, and both are valuable tools to help you with your finance. Neither precludes the other, so you can mix-and-match, as your needs dictate.

Technorati : Flexible Spending Account, Health Savings Account, medical insurance, personal finance

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House insurance isn’t always cheap as well as health insurance but everyone should have it. Health insurance is important to have and if you find the right insurance company you can get good rates.