It’s time to sign up for health insurance at work, and there is a new option – a Health Savings Account (HSA). How is an HSA different from the Flexible Spending Account I had last year?
Excellent question! To have an HSA, you have to be in a special health insurance plan – called a High Deductible Health Plan or a Consumer-Driven Health Plan. These insurance plans meet guidelines set by the tax laws; not just any high deductible plan will do.
The HSA is a tax-free bank account that holds money to pay your (high) deductible. You can also use the money for other medical bills that qualify for tax-free dollars. At the end of the plan year, any money left in your HSA “rolls over” to the next year. As long as you stay in a High Deductible Health Plan, you can keep depositing money to the HSA. If you drop out of the High Deductible Health Plan, you have to stop depositing money; but you can keep withdrawing money for medical bills.
The Flexible Spending Account – also called a Medical Reimbursement Account – does not require you to have a certain health insurance plan. The flexible spending account dollars have to be used during the plan year; they do not “roll over” from one year to the next.