When I first heard about Health Savings Accounts (HSA) I was drawn in by the concept of having a Flexible Spending Account (FSA) that I wouldn’t lose the money from at the end of the year.  For those of you that are unaware, a FSA is a pre-tax account you can use to fun medical expenses, but only if you have it taken right from your paycheck.  It saves you money because it lowers your taxable income, but the catch is that if you do not spend it all it disappears at the end of the year.

The HSA differs in multiple ways:

You Don’t Lose It

The maximum contribution you can make for a family is $5,950.00, and any of that money that you don’t spend in the year rolls over to the next year.  But in a qualifying health plan, if you put the max in you’ll probably not even be able to spend it all.

High Deductable Health Plan

HSAs are only available on high deductable health plans.  I’m in one now that has no copays (so I pay post-insurance cost), but after I reach a high deductable, everything’s free.  In my case, it’s $1,500 for an individual, $3,000 for a family.  So the most that I could lose out of my HSA is $3,000.

But it gets better.

High Deductable Means Lower Per Month

If you compared the two health plans that my company offers me, if I were to look at total cost of the plan, I save $200 a month by opting for the high deductable plan.  Doing the math, I save $2,400 a year, and the max out of pocket for me would be $3,000.  If I were on the higher payment per month plan, I’d still pay a deductible for some things (and copays for others) and I’d be paying $200 more!

That’s Not All!

But wait, the really cool part about HSAs is that the money that isn’t reserved to pay medical bills can be invested—in stocks, bonds, mutual funds, etc.  It’s got a component to make the account just like an IRA.  An IRA with a debit card and bill pay for medical expenses.

And that’s where my post from last week comes into play.  I was able to do a one time transfer from an IRA into this account that’s basically a super IRA¹, and that process is all complete.

So I have a fully funded HSA ($11,750 for tax years 2008 and 2009), I don’t have to put anything into it this whole year (I can’t without tax implications), it’ll pay for the worst case scenario for at least this year, and now, all I have to do is figure out if I want to invest a part, and if I do, where?

Anyone want to give me some tips on where I should invest?

1. Super meaning it has more features. [↩]