Health savings accounts are similar but different to medical flexible spending accounts. Health savings accounts (HSA) are connected to high deductible health insurance policies typically owned by individual whereas medical flexible spending accounts (FSA) are offered through an employer. While they are offer the same tax benefit (pre-tax deduction), the one significant difference is that HSA funds do not expire. When you fund a FSA, the “use it or lose it” rule applies, so many people are hestitate to put too much money in it in any given year. However, what many people do not know is that some plans have an extended deadline of March 15th of the next year to submit expenses for reimbursement. Hence the big rush in December that we see at the eye doctor’s office as people buy another pair glasses or stock up on contact lenses in an attempt to use up their FSA/MSA accounts before 12/31/09. If your plan has the extended deadline, you can have 2.5 more months to submit expenses for reimbursement.
An HSA on the other hand does not have a deadline. Any funds you contribute can stay in your account and even grow tax free if you choose to put it in an investment account. This is a great strategy to consider for those closer to retirement. They can make the yearly maximum contribution to an HSA to reap the maximum tax benefit in the years they are earning income. Then when they have significant medical bills later in life, these funds can be used to pay the bills.
Note the current annual contribution limits for an HSA are $3050 for individuals and $6150 for family coverage. However, if you are age 55 and older, you can contribute a catchup amount of $1000 but contributions must cease after an individual becomes eligible for Medicare. MSA typcially have their contribution limits set by the employer.