If you still have a job and you’re employer still offers health insurance, that’s great. While you may be asked to ante up more for the premium in 2011, there may still be ways to save some money on your health insurance. For many companies, end of year is open-enrollment period. If you’re given the opportunity to select a Flexible Spending Account or Health Savings Account, give it serious consideration. Even with coming changes to these programs because of health care reform, both still offer you a chance to keep more of your hard-earned cash in your pocket. Here are the basics of these health insurance savings programs.
Flexible Spending Accounts
- A Flexible Spending Account (FSA) is established by your employer and may be offered in combination with other benefits as part of a health insurance cafeteria-type plan (meaning the employer designs a the company-provided health care plan and decides which benefits to offer you).
- With an FSA, you voluntarily elect to make pre-tax contributions up to the allowable limit (usually $5,000). This money is deducted incrementally from your monthly pay. You collect receipts for medically related expenses and turn them in for reimbursement. (Note that you cannot be reimbursed for more than you’ve contributed.)
- FSA contributions are use-it-or-lose it. Any unused contributions do not roll over to the next year. They do not earn interest and you cannot withdraw funds for non-allowable (i.e. non-medical) expenses. If you quit or are terminated and haven’t used up all your contributions, you cannot take them with you.
Health Savings Accounts
- A Health Savings Account (HSA) is a tax-exempt account you can use to pay for qualified expenses. In 2011, you can contribute up to $3,050 as a single or $6,100 for a family. You own the account even if you quit or are terminated.
- Eligibility requirements include that you be covered by a High Deductible Health Plan with a minimum deductible of $1,200 for an individual or $2,400 for a family. You also cannot be a dependent on anyone else’s health plan (e.g., a spouse’s or parent’s) or enrolled in Medicare.
- In addition to being tax-free, your Health Savings Account contributions earn tax-exempt interest that accrue from year-to-year. If you make withdrawals for qualified medical expenses, that money is also tax-exempt. If you choose to withdraw funds for non-qualified expenses, you can, but you’ll pay a 10% tax penalty, unless you’re over 65 or disabled.
Other limitations and restrictions may apply. Consult your plan administrator or tax advisor for specifics relative to your plan and situation.