Saving on Health Care Costs

• have a high-deductible health plan (HDHP) which typically features a high deductible but lower premiums than traditional health care plans. An HDHP also has a maximum annual amount on the sum of the deductible and out-of-pocket medical expense that you pay for covered expenses. To be a HDHP, a plan covering one eligible individual must have minimum annual deductible of $1,100 and a maximum annual amount (deductible + other out-of-pocket expenses) of $5,600. For a plan covering a family (one eligible individual and at least one other individual), the minimum annual deductible is $2,200 and the maximum annual amount is $11,200.
• not be covered under any other health coverage. Exceptions include worker's compensation insurance, insurance for specific disease or illness, insurance that pays a fixed amount per day (or other period) of hospitalization, or coverage for accidents, disability, dental care, vision care, or long-term care.
• not be enrolled in Medicare.
• not be claimed as a dependent on someone else's tax return.

• You can claim any contribution you or another eligible individual (except your employer) made as a tax deduction even if you don't itemize deductions on Form 1040.
• If contributions are made to your HSA by your employer, it may not be counted as income. This means that it may not included in your gross income total on your W-2.
• Contributions do not have to be used by the end of the year, they roll over.
• Any earnings or interest on the assets in the account are tax free.
• Distributions are tax free if they are used to pay for qualified health care expenses.
• The HSA goes with you if your employment situation changes, such as changing employers or leaving the work force.

• Contributions must be in cash. Contributions of stock or property are not allowed.
• Contributions are limited. For 2008, the maximum contribution for an individual is $2,900 and families is $5,800. If you are age 55 or older, you can contribute an additional $800.
• You can no longer make contributions once you are enrolled in Medicare.
• If distributions are not used for qualified health care expenses, you will pay federal income tax on the amount, plus an additional 10% tax on the amount.
• If you exceed the contribution limit, you must pay a 6% excise tax on the excess amount.

• Lowers your taxable income by the amount you put in the FSA. Because you'd be paying those expenses any way, the tax savings is like a discount on those expenses. For example, if you're in the 28% tax bracket and you sock away in the FSA the $4,000 maximum your employer allows and use it to cover $4,000 of your $4,300 out-of-pocket medical expenses, then you could realize tax savings of up to $600. This is just an example. You need to look carefully at your individual situation.
• The plan also covers over-the-counter drugs, a boon with all the prescription drugs that have moved to OTC.
• Deposit $300, for instance, in the account and your take home paycheck may drop only $275 because of the tax savings.
• If you itemize deductions on your tax return, but know that your typical medical expenses barely exceed the deductible percentage threshold of 7.5% of Adjusted Gross Income, then the FSA could offer greater tax savings than taking the deductions on schedule A. For example, if you and your spouse have a joint Adjusted Gross Income of $75,000, you could deduct on Schedule A only the amount over $5625. But if you have only $4,300 unreimbursed medical expenses, the FSA would offer you greater savings.
• Typically, you can use the money you've agreed to place in the FSA before it's all paid in. Let's say in March, you fall down the back steps (ouch!), breaking your arm, your glasses and your pride, not to mention chipping a tooth. By the time you're on the mend, you've spent $750 on deductibles and the glasses and dental work your health insurance doesn't cover, but at $200 deducted per month you have only $600 in your FSA. Usually you can submit a claim for the whole $750, kind of an "advance" against the $2,400 total you've agreed to deposit.

• Use it or lose it. At present, if you don't spend all the funds within the year, you lose what you didn't spend. There is no rollover. The average amount left in accounts is about $100. Some plans provide a grace period of up to 2 1/2 months after the end of the plan. If there is a grace period, any medical expenses incurred during the grace period can be paid from the amounts left in the account.
• Just like insurance, you have to submit your claim and documentation to get the reimbursement from your FSA. Different companies handle the reimbursement process differently. So make sure the process at your company is something you are willing to do faithfully. (More and more companies are turning to some sort of "account card" to make use easier. In practice, these typically work like a debit card.)
• Unless you carefully figure your estimated out-of-pocket expenses, you could put too much money in the account. So if you aren't willing to take the time up front to really look at your health care costs and do the math, then you could leave more than your potential tax savings in the account. Many employers offering the plan provide worksheets to help make this task easier.

• Contributions to the account by your employer are not counted as income. This means that the amount contributed is not included in your gross income total on your W-2.
• Reimbursements for qualified medical expenses are tax free. This means you don't have to pay any income tax on the amount.
• At the end of the plan year, any money left over can be rolled over for use the next plan year.

• To get reimbursement from the HRA, you have to submit your claim and documentation. This reimbursement process varies from company to company. Many companies are using some sort of "account card" which typically work like a debit card.