Most of us at one time or another have had a savings account at a bank. Health savings accounts are not that much different. A health savings account is a tax free medical saving account. Health savings accounts are always associated with high deductible health plans (HDHP). With a high deductible health plan, your annual deductibles are high but the monthly premiums are low. The health savings accounts make it possible to set money aside and then use it whenever needed for your medical expenses.
Health savings accounts are fairly new to the insurance scene. In December of 2003, President Bush signed the Medicare Prescription Drug Improvement and Modernization Act. This law was intended to help businesses save money on skyrocketing health insurance costs by allocating a greater portion of the cost to employees. In turn, an employee would pay lower monthly premiums but was responsible for much higher deductibles before health insurance coverage would kick in. In effect, you are self-insured up to your deductible for each year that you are enrolled in a HDHP. Previously, medical savings accounts were available only to small businesses and the self-employed. Health savings accounts are available to anyone under the age of 65.
The earlier medical savings accounts were tax free but did not allow for any type of investing. Not only are the HDHP health savings accounts tax-free, the assets from the accounts can be invested. This makes high deductible insurance plans an affordable and possibly lucrative option. You are allowed to set aside tax-free dollars now to guard against future health issues. If you enjoy good health and don’t need to use the money, your overall financial health will improve as well!
There is also another type of savings account applicable to medical expenses. A health care flexible spending account (FSA) is somewhat like a heath savings account but there are differences. One of the biggest differences is the amount of money that can be placed in them each year. With a flexible spending account there is no cap on the amount of money that can be contributed to the account unless your employer or insurance company sets one. Flexible savings account may sound like the better deal but if you are looking for cbdrumourcom it’s really not. The money you set aside in a flexible spending account can only be used for qualified medical, dental, vision or prescription expenses or any health-related expense that your health insurance policy does not cover. In addition, FSA funds must be spent each year or you forfeit any remaining balance. Thus, to maximize the tax savings benefits of a FSA, you need to be pretty accurate in determining your medical expenses from year to year.