Unlike the Flex Spending Account, which allows you to spend the money before you have placed it in the account, the Health Savings Account is more of a planning account for emergencies and only allows you to spend the amount that is currently in the account. There are some different benefits the Health Savings Account has that the Flex Spending Account is lacking, like the ability to roll over the funds, smaller insurance premiums, and also the investment portfolio, which is how the fund is set up.
Roll Over
The Health Savings Account, or HSA, allows the holder to roll over their funds from year to year, unlike the FSA, which is a use-or-lose type of account. If you or your family does not need large amounts of money for medical purposes, the HSA is usually a better option since the amount in the account keeps growing the longer the account is active.
Smaller Premiums
Many insurance plans offer smaller premiums to people who have a Health Savings Account because they know the money will be there when it is needed to pay for medical expenses. Because the deductible is higher, and HSA can be used to pay part of the deductible, the rates are typically lower than many standard plans. Combining a Health Savings Account with a HMO can provide some of the lowest rates in the personal health insurance industry.
Investment Portfolio
The Health Savings Account is set up like a mini Health IRA. The money that is put into the account is distributed between a number of stocks, which the insured has the option to move around. Acting just like an IRA means that while the person is young and does not need all of the money for health related issues; the interest keeps building for when the money may be needed during later years.
Compound interest within the categories of investments can easily accrue over the years depending on the economy and sound investment practices. Keeping an eye on the HSA is in the best interest of the individual and diversifying between stocks, bonds and mutual funds can pay dividends later in life.
Tax Free
Any money put into the account is tax free, just like the FSA, but will continue to grow tax free through the investment process and is not even taxed upon withdrawal when used for valid medical expenses. Using the power of shopping around, people can stretch the funds in the Health Savings Account to offer greater stability later in life, when medical bills grow.
Personal Responsibility
Competition drives prices down. Typically with Health Savings Accounts, the first large part of the deductible has to be met before the insurance company will pay for any charges. This requires some diligence on the part of the insured because they are still spending their personal money on health care. Instead of taking all the tests, x-rays, full DNA analysis and the works, people with HSAs usually only get what is absolutely necessary for their condition to improve, which requires insurance companies to pay less money and thus drives insurance costs down.
Health Savings Accounts are for people who are planning for the future and are looking to make health care more affordable for others. HSA account holders are both financially savvy and look out for the best interest of others. If you have any questions about Health Savings Accounts, contact your local insurance representative and ask them the hard hitting questions to truly decided which route would be best for you and your family.
Return to the Table of Contents for the Choosing Health Care series
