How to Save Money with Health Spending Accounts

With a little financial savvy, you can save money on medical expenses. Here's what you need to know about FSA, HSA, and HRA accounts.


Call us a nation of bargain shoppers: We buy in bulk, wake up at dawn for sales, and tune in to reality shows about (extreme!) couponing. Despite this fixation, most Americans pass on savings that could add up to hundreds of dollars each year. According to a survey of 1,000 women commissioned by Better Homes & Gardens, 62 percent of us don't have a health-related savings account.

But these plans can mean tax savings and, in some cases, free money for medical expenses. Not sure which one to pick? Check out this cheat sheet.

FSA

A Flexible Spending Account, which is set up through an employer, sets aside pretax dollars for health-related expenses. If you're in the 25 percent tax bracket, you'll save around $30 for every $100.

Good For
Because an FSA covers costs from co-pays to prescriptions to bandages, most people stand to benefit. It's particularly helpful for those who expect health bills, say from a child who needs braces. "For known expenses, you can't beat FSAs," says Jody Dietel, the chief compliance officer at benefits company WageWorks.

Remember
To get reimbursed, you have to submit your receipts. (Don't toss that slip!) Under current law, you must spend the money in the account by the end of the calendar year, or it goes to your company.

Tip
Before you sign up, check with your human resources administrator about what's covered. Some plans include items you might not expect, like massages and gas mileage for a doctor's visit.

HSA

The money in a Health Savings Account can be invested, so it can earn more than it would sitting in savings. The cash is rolled over each year, and you can withdraw it all at age 65.

Good For
To sign up for an HSA, you must have a high-deductible insurance policy (at least $1,250 for individuals and $2,500 for a family). Depending on the plan, you contribute before taxes or afterward (and take a deduction). HSAs are available through employers and banks.

HRA

A Health Reimbursement Account is the only health savings tool that your employer funds entirely. Typically, the money stays in your account from year to year.

Good For
It's free cash from your employer, who receives a tax deduction. Most HRAs cover nearly everything you can expense to an FSA or HSA, such as co-pays and prescriptions. Some HRAs require you to file claims for reimbursements; others issue you a check card for health expenses.

Remember
You don't get to keep the money when you leave your job, so keep that in mind while making a career change or preparing for retirement.

Tip
If you've been at your company long enough, you might be able to use that money in retirement, Dietel says. Some workplaces are setting up HRAs for retiring employees. Check with your benefits manager.

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