HSA, MSA, HRA and FSA Medical Accounts
Health Savings Accounts, Medical Savings Accounts, Health Reimbursement Arrangement, and Flexible Savings Accounts are all special accounts that may be offered or provided to you by your employer. They offer the ability for you and your employer to pay for some benefits with ‘tax-advantaged’ dollars. This means that your contributions or your employer contributions into these accounts may be deductible, before taxes, or may be tax neutral to you.
Sometimes these plans work in conjunction with higher deductible and co-payment plans to help you plan for expected expenses, offset unexpected expenses, or gain tax advantages, thereby further offsetting expenses. People today are paying more out-of-pocket for health care and health insurance, so these plans provide significant benefits if you have them.
If you have a Health Savings Account, you also have a high deductible health insurance plan (HDHP). For 2012 the most you can contribute to these is $3,100 if you are single and $6,250 for a family. If age 55 and older an additional $1,000 catch up contribution may be allowed. You can receive tax-free distributions from your HSA to pay to pay the following:
- Qualified medical expenses and prescription drugs (no longer over the counter medications)
- COBRA insurance
- Health Insurance premiums for individuals receiving unemployment compensation
- Qualified Long-term Care Insurance and expenses
- Medicare and retiree Health Insurance premiums, but not the premiums for a Medicare Supplement policy
- For a complete list, see the IRS website for publications 502 and 969
HSA monies used for other purposes are taxed at income tax rates, and with a 20% penalty if prior to the age of 65.
Medical Savings Accounts are similar to HSAs, however Flexible Spending Accounts differ in that monies not used by the end of the year are forfeited to the plan. Health Reimbursement Arrangements are employer funded plans and are not very common.
If you have one of these accounts, I encourage you to gather the benefits booklet from your employer and study it along with Publications 502 & 969, so that you are ready to make an informed decision when Benefit Election Time occurs with your employer. To help you plan, know what is paid by these accounts, previous year’s tax returns, and expected health related expenses. I realize that medical expenses are hard to predict, but you may be able to predict some medical expenses. For instance, after continual problems with my tonsils, it wasn’t difficult to predict that they would need to be yanked out. Careful planning is most important for FSAs.
Having a properly planned medical account works like and in conjunction with an emergency savings, only it is turbo-charged with tax advantages and the ease of payroll deduction.