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A few weeks ago when discussing the major types of health insurance available, I mentioned that my family uses a Health Savings Account (HSA). Having used a HSA for a few years now, the high deductible, HSA health insurance has become my insurer of choice. I thought I would go over why it has been beneficial to my family, especially lately.
The HSA is usually connected with a high deductible health insurance plan. The account can be funded by either the employee or employer, usually a combination of both. Once funded, the HSA can be used to pay covered medical, dental, and vision expenses including your deductible and co-pays. The big advantage of using a HSA is that the contributions either from you or your employer are tax-free, meaning you do not pay income taxes on the amount contributed as well as any interest earned on your account. When paying for medical costs you can either pay directly out of your HSA or pay out-of-pocket and later reimburse yourself out of your HSA when you actually have the money in your account. Another good thing is that the balance in your HSA can be carried over from year to year. There is no use it or lose it unlike the Flexible Spending Account. Also, reimbursable expenses do not have to be reimbursed in the same calendar year.
Fortunately, because my family has been relatively healthy we have not had to use the HSA a whole lot. But my wife found out during her last dentist checkup that she would need two crowns. The bill ended up being around $3,600. Thankfully we had our emergency fund in place, were able to pay for it out-of-pocket and did not allow it to become a financial crisis. At the time however, we only had about $1,200 in our HSA. To reimburse myself, I upped our monthly HSA contribution to $750 a month for the remainder of 2010 and over time will reimburse myself the $3,600.
You might be asking yourself how I came out ahead; I am just moving money around from one account to the next. Well the answer to that question is: Taxes! The $750 I contribute to the HSA is tax-free on the federal, state, and local level. Depending on what your tax rates are, you can save anywhere from 15% to over 50% in healthcare expenses that the federal government and your state and local government is picking up the tab for!
Overall I just really love the HSA. It offers tax-free contributions and tax-free growth to be used for medical expenses either in the present or down the road in the future. I also like it because my family is relatively healthy and therefore we can take the risk of having a high deductible and save on premiums. HSA accounts are becoming more and more popular and it is easy to see why as health insurance costs continue to rise. My recommendation is to shop around and see if a HSA would be beneficial to your family.