Choose your plan wisely.

Tis the season of open enrollment and if you are like me, you’re trying to figure what you’re going to do about your health insurance for the coming year. On top of choosing the right coverage, you also have to decide what additional health savings plan works best for your situation. Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) are gaining popularity with employers (especially employers with younger and healthier workforces). Many companies are offering their workers the option of enrolling in an HSA or similar account instead of the usual HMO or PPO. Here’s how these new consumer-driven health savings accounts work.

The HSA- Health Savings Account.

An HSA gives you a tax-exempt savings account to pay for your own health care expenses. Money you don’t spend in one health plan year rolls over to the next. You are also enrolled in an HDHP (High Deductible Health Plan), in which your insurance company will only pick up the tab for major health care expenses (including types of preventive care, maternity care, and pediatric primary care). In 2007, the minimum deductible on an HDHP is $1,100 for individuals and $2,200 for families.

The rising popularity of HSAs can be summed up in two words: low premiums. In the traditional insurance plan, you pay high premiums up front; in the HDHP, you pay lower premiums and essentially assign the savings to your own health care expense account.

Individuals can currently put up to $2,850 per year in an HSA, families $5,650 per year. The money grows tax-deferred and distributions are tax-free (if they are used to pay for qualified medical expenses). You can even invest HSA assets. If you’re 65 or older, you may withdraw money from an HSA for any reason without tax penalty.

The HRA- Health Reimbursement Account.

While an HRA is a tax-advantaged account like an HSA – the account savings grow with time – the assets in an HRA don’t belong to you. They belong to your employer, and they revert back to your employer when you leave your job. The HRA is essentially a favor your employer does for you – a reimbursement account rather than a true “asset” in your possession.

The FSA- Flexible Spending Account.

With an FSA, you deduct pre-tax dollars out of your salary to pay qualified medical expenses. You can designate an FSA for your own health care expenses or for those of a dependent. But most FSAs are “use it or lose it” – at the end of the plan year, the money left in the account doesn’t roll over into the next year. Employees tend to minimally fund FSAs as a result, although they can be used in conjunction with HRAs.

If you have questions about HSAs, HRAs or FSAs, why not speak with a financial or insurance professional as well as your human resource officer? It’s wise to get as much information as you can before making the switch from an HMO or PPO.