If you're like many hard-working Americans, you're finding it difficult to procure affordable health insurance coverage. Even if you still receive coverage through an employer-sponsored plan, it's likely that your benefits have been reduced. As the cost of health insurance continues to rise, it will become increasingly difficult to find employer-sponsored plans that don't require significant contributions from the employees who use them. At the same time, it may become even more difficult to find affordable plans on the open market. Many folks may be forced to enroll in state-level health insurance exchanges that offer variable benefits at fluctuating price points. Over time, it seems all but certain that the plans that insurers offer through these exchanges will become more expensive as well.
In this environment, the growing popularity of health savings accounts is a welcome development. Health savings accounts are designed to allow middle-class consumers to build up a "rainy day fund" in the event of a catastrophic injury or illness. Unlike regular health insurance plans, these savings accounts build up cash balances that can be redeemed or withdrawn under certain circumstances. Although health savings accounts have plenty of drawbacks, many Americans have been attracted to them by their apparent simplicity and flexibility.
"Flexible savings accounts" resemble health savings accounts in many key ways. However, they have certain restrictions and limitations that may make them less attractive to the average consumer of health insurance. If you already have a flexible savings account or wonder whether it's time for you to open one, it's important that you learn more about these issues.
For starters, you can't pay your husband's health insurance using your flexible spending account funds. These funds can only be used to pay for out-of-pocket healthcare expenses.
In addition, flexible savings accounts come with a tight $2,500 annual contribution cap. Although this is enough to cover some of the out-of-pocket costs that are regularly associated with healthcare services, it may not be enough to cover the full cost of the services that you use during a typical calendar year.
In addition, the funds in flexible savings accounts must be used to pay for certain pre-approved procedures and services. For instance, you can use your flexible savings account to pay for your primary health insurance plan's deductibles and co-pays. Unfortunately, you can't use it to cover the costs associated with big-ticket elective procedures. If this seems unreasonable, you may wish to opt out of your flexible savings plan and obtain a regular health savings plan.