How do I pay for all this: HSA

Overview

As I mentioned in my previous post on paying for my medical care, How do I pay for all of this? Insurance, my insurance plan is a High Deductible Medical Plan (HDMP) with a Health Savings Account (HSA).  I also have a Flexible Spending Account (FSA), however, when Flexible Spending accounts are paired with HSAs then you may only use your Flexible Spending account money on dental, orthodontia, and vision care (it is called a limited purpose flexible spending account).

HSA

What this means in practice, is that my health insurance doesn't actually pay for any of my medical care until after I've met my deductible for the year.  I cover this deductible gap with money from my HSA.  The HSA allows me to save money for health care expenses tax free - sort of like a Traditional IRA - only the money goes towards health care expenses rather than retirement.

A couple of wonderful aspects of this HSA money:

1. Tax deductible - you don't pay taxes on the money you put in the plan
2. Carries over - if you don't spend all of this money, it is available in following years
3. Eligible for retirement - you may transfer some of this money into a retirement account

Because I require so much medical care, I have spent all of my HSA money in every year.  In some years (like last one), I end up spending significantly more on medical care than the money I set aside in my HSA - this money comes out of my pocket.

I contribute some of each paycheck to my HSA.  However, this means that the money accrues through the year and that the account hasn't received all of the contributions until the end of the year.  Because the HDMP incurs most of its costs at the beginning of the year, this can leave the patient scrambling to pay very high medical costs if they happen early in the year.

FSA

The Flexible Spending account money does not roll-over into another year.  If you do not spend all of the Flexible Spending account money, then it disappears (to whose benefit, I've never figured out).  Recently the IRS relaxed the rules in this area and the money only needs to be spent by March 15th of the following year.  I presume that this date depends upon the tax filing deadline of April 15th.

However, my FSA has one benefit that my HSA does not.  All FSA money appears in the account at the beginning of the year.  This means that I can cover any dental or vision expenses immediately with the money in that account.