Many patients at San Diego Center for Health have discovered the benefits of having either a Flex Spending Account or a Health Savings Account via employee benefits in recent years, allowing them to pay for chiropractic care, soft tissue therapy, nutritional consultation, spinal decompression, custom orthotics and exercise rehabilitation in a tax free manner.  This is a wonderful program for employers and employees throughout the United States and is taken advantage of by approximately less than 20% of the employed population.  Here is an overview of both types of savings accounts available to you.  For specific questions on programs available through your place of employment (or as a small business owner), please refer to your Human Resource department or financial planner for further information. 

Flexible Spending Account
What It Is:
A flexible spending arrangement (FSA), often called a flexible spending account, is a benefit that may be offered by large employers. It allows you to put aside money from your paycheck before it is taxed to pay health-related expenses that aren't covered by your insurance. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings. By using pretax dollars you're effectively buying health-care services at a significant discount. For many, it translates into at least a 30% savings on your health-care expenses. The money taken out of your paycheck is put aside in an account that your employer (or a subcontractor hired by your employer) oversees. You might be issued a debit card to pay for expenses directly, or your company might require you to submit receipts for each reimbursement. The legal limit of the account is $2,500 starting in 2013. Since this is a payroll action, your Social Security Number is required to enroll. 

There is one catch: You must use the entire amount of the FSA by the end of the benefit period or the funds go back to the plan, which your employer typically uses for other benefits. To determine how much you should set aside in your FSA, it’s a good idea to go through a typical year's records and tally your health-related costs not covered by insurance.

What It Can Be Used For: Money in your FSA account can be used for a broad range of medical expenses such as chiropractic, exercise rehab, acupuncture, insurance co-pays, medication (with prescription) and deductibles.

How You Save: Since the money you put in the account is not taxed, there is more of it—100%, rather than the 70% or so after taxes—to spend on health-care needs. And because the money is subtracted from your pay before taxes, your overall taxable income is lowered, reducing the amount of taxes you owe at the end of the year. The savings are significant: Someone in the 25% tax bracket, for instance, will get a discount of about 37% on health-care costs that are paid with the money in their FSA.

Bottom Line: If your company offers an FSA, take advantage of this program but don’t get overly aggressive on your calculations, with the “use it or lose it” rule in mind. Try to be realistic and conservative about how much money you will spend each year so you don’t end up losing any money left in the account. You have up to 14-1/2 months to use up your annual election if your employer chooses to adopt the 2 ½ month extension option, so you may wish to contribute more than you expect you’d spend in one year.

Health Savings Account

What It Is:A health savings account (HSA), is a tax-advantage medical savings account available to taxpayers in the United States. To be eligible, you must be enrolled in a high deductible health plan (HDHP), which the IRS defines as a plan with an annual deductible of at least $1,100 for individuals or $2,200 for families. The funds contributed to an account are not subject to federal income tax at the time of deposit. HSAs are often compared with IRAs because the more money you leave untouched in your HSA, the more money will accumulate in your account that you can then use for the greater health-care expenses that will likely come in your retirement years.

To help offset the high deductible, you (or your employer) can deposit money into an HSA maintained by a financial institution, up to a maximum of $2,900 for an individual account and $5,800 for a family account. (Individuals 55 and older can deposit an additional $900.) You can use those funds to pay for medical expenses until you reach your annual deductible, and, after that, to pay for expenses that aren’t covered by your health plan. To use your HSA funds, you are issued a debit card that subtracts money directly from the account, although in some cases you may be required to submit receipts to the account trustee for reimbursement.

A health savings account (HSA) allows you to save untaxed income to pay for health-care costs, both in the short- and long-term. In addition to routine medical expenses such as doctor’s visits, prescriptions and lab work, you may also use the money in your account to pay for medical expenses not covered by your insurance. You can also pay for long-term-care insurance premiums, and health-insurance premiums when unemployed or when receiving continuation coverage (such as COBRA). You cannot use an HSA for a Medicare supplemental policy such as Medigap.

How You Save: You save three times over since taxes aren't taken out of the money you put in, interest earned by money in your account is tax-deferred, and no taxes are owed when you withdraw the funds to pay for qualifying medical expenses. HSAs benefit either very healthy people or people with chronic illness. The high deductible health plans that an HSA must be paired with usually have lower premiums than traditional ones, so if you are young and healthy and don’t incur many medical expenses, you can save with the lower premiums.

Bottom Line: If you are young and healthy or do not have access to an employer-paid plan, in all likelihood an HSA is a good idea. It also may be recommended if you have a chronic or serious medical condition and an insurance plan that does not cover 100% of your expenses. If you can afford health insurance now, you can afford to refinance your account, be in charge of your own healthcare and decide how to spend your money without involvment of insurance.  

If you have questions on how to utilize your FSA or HSA plan please contact:

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