Ok so there seems to be a lot of confusion around the Health Savings Account that the government is now allowing. So I figured it would be good to go over the kinds of medical savings accounts currently available and point out the differences. First of all some definitions:

Health Savings Account:
Its a tax-advantaged medical savings account available to taxpayers who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. The funds in the account can be used to pay for qualified medical expenses at any time without having to pay taxes on them. Withdrawals for non-medical expenses are treated very similarly to those in a retirement account in that they provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a huge part of consumer driven health care.

Health Reimbursement Account:
These are accounts that allow an employer, as agreed to in the HRA plan document, to reimburse for medical expenses paid by participating employees. HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company’s selected standard insurance plan (any health insurance plan, not only high-deductible plans).

Flex Savings Account:
This is actually similar to the other two but it is offered with more traditional (such as the 80/20) plans as well.

These are all (FSA being the slight exception to the rule) consumer driven health care plans.

What is a consumer driven health care plan?
It is a plan that allows members to use personal income to pay routine health care expenses directly, while having a high deductible health insurance plan that protects them from huge (catastrphic) medical expenses. Its called “consumer driven” because it gives patients greater control over their own health. It also makes consumers more health care cost conscious…though in more of a good way. For example a study showed that people with chronic problems were 20% more likely to follow their treatment regime carefully if they were part of a consumer driven plan.

What is the main advantage?
There are many advantages and some disadvantages but the main advantage is that it is before-tax money. So if you do not use health care much, you will save a good deal of money in the long run.

All of that being said here is an overview of the differences:

There seems to be a lack of information around on these types of accounts so I hope this helps clear things up a bit. I personally am going to open a health savings account for next year. My employer pays for everything for a high deductible plan, and I am currently on an 80/20 plan but I just don’t go to the doctor very often despite a very serious injury from a few years ago. I especially like that it can be rolled over into retirement and that it can sit and collect interest.

Because I don’t go to the doctor, I have one fixed monthly medical cost: $69/month for propecia. Now, I have all my hair. My dad has no hair (not that he looks bad, I’d like to just wait until I can pull off the “Im old and bald but I am a BA” ala Patrick Steward/Bruce Willis). I decided Id like to keep mine for a while, so propecia it is. Thing is, health insurance doesn’t cover it, so its all out of pocket. If I used a health savings account this WOULD cover it, so by using that to pay for it every month I would effectively be giving myself a $30+/month raise.

Of course this banks on no huge medical bills, but I figure this is the only time in my life that I could get away with that. Maybe you can too.

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