How does a medical savings plan work?

Answer 1

Medical Savings AccountIn the United States there is a Medical Savings Plan that is available through some employers. The benefit is that the money is taken out of your paycheck BEFORE income tax is calculated. In other words, the money that goes into the account is tax free. While this may not seem important, it effectively adds 25-35% to the value of the money, a quick bonus. You also do not have to meet the percentage of income requirement to deduct medical expenses (I believe it is currently 7%).

There are two kinds of accounts the FSA and the HSA. There is no requirement that the company provide these, they are another benefit.

The Flexible Savings Account is made available as a benefit by those companies that wish to do so. The downside of this type of account is that you have to use it up in the specific year, or you lose the money. So it is better to under estimate a bit than to over estimate your needs. And you must sign up before the year starts.

Depending on the employer and program, they may allow things not covered under your health insurance, such as chiropractic care. And changes now allow you to deduct over-the-counter health items like aspirin and vitamins. See your employer and the benefits programs to determine your eligibility.

The Health Savings Account is more long term. In order to use it, there are requirements related to large deductibles on the basic insurance provided by the employer. The big advantage to this account is that it does not have to be used within any specific calendar year, and as long as you use it for qualified medical expenses, there is no tax on it.