A new generation of health care is dawning. 

For more than 20 years, employees, employers and physicians have been growing more frustrated with health insurance. As medical expenses and insurance costs continue to increase, few people can afford indemnity (FFS) plans. The rest are weary of the restrictions inherent with managed care programs like HMOs. People are demanding more choices and control over their health care decisions. 

Behind the scenes, a change has been building. Health care savings accounts put you in charge of your health care decisions. They may also represent the future face of health care. 

How Health Care Savings Accounts Work
Health care savings accounts allow non-taxed money to be placed in an account for use towards qualified medical expenses. These expenses can include paying for doctor visits, lab fees, hospitalizations, deductibles, vision care and more. 

There are several different types of health savings accounts. It is important to understand the differences between them in order to get the most out of them. 

Health Savings Account (HSA)
Currently, this is the flagship of the health care savings account movement. These tax-free accounts are linked to a high-deductible catastrophic insurance plan with a low monthly premium. The minimum deductible amounts for these plans are currently $1,000 for individuals and $2,000 for families. Situations vary, but employers generally contribute something like $600 - $2000 per year. If you use up all the funds in the account, you'll have to pay the difference before the catastrophic insurance kicks back in. So, if you're employer contributes $2,000 and the deductible is $3,500, you're responsible for paying the $1,500 difference before your insurance pays for services. This is called the ‘donut hole.' 

The savings account functions much like an IRA or 401(k). The money generates interest and unused funds are rolled-over on a yearly basis. So, if you take care of your health, are smart about the way you use health care and are fortunate enough to avoid major injury or illness, you can see substantial savings accumulate. 

• Contributions are made by employer, employee or both on a tax-free basis
• Money is used to reimburse you for qualified medical expenses
• Coverage can be extended to cover spouses and family
• Catastrophic insurance kicks-in after meeting out-of-pocket maximums
• Upon reaching the age of 65 or becoming disabled, funds can be withdrawn without penalty (will be taxed as income)
• You won't lose the money if you change jobs.
• Great health insurance option for small businesses and the self-employed.
  

Health Reimbursement Accounts (HRA)
HRAs are funded by your employer. They are also owned by the employer. HRAs work similarly to HSA accounts and are tied to a high-deductible insurance plan. A savings account exists to reimburse you for qualified expenses and unused funds generally roll-over from year to year, but this can vary by company. 

There are some very important distinctions that make these accounts more beneficial for your employer than they are for you: 

• Employers keep unused funds if you leave your job
• Employers can set reimbursement limits up to a specified amount
• A company can change its HRA rules and policies at will
• There are no investment or retirement advantages
  

Flexible Spending Account (FSA)
These were one of the first medical spending accounts and many people are already familiar with them. These accounts do not generate interest and you can not take them with you if you leave your job. Also, they don't roll-over from year to year. So, if there is money left in your account at the end of the year, you will lose it. 

• Funds are contributed by you, your employer, or both
• Money contributed to the account is not taxed
• The money is used to reimburse you for qualified medical expenses
• Your company sets yearly contribution limits
  

Medical Savings Account (MSA)
HSAs were created in 2003 and expanded on the pre-existing MSA plans. All MSA plans have been converted to HSA plans. 

Advantages
Health care savings accounts can be financially rewarding to people who commit to staying healthy, while still offering needed protection in the event of serious illness or injury. They are extremely attractive as a health insurance offering since people see unused funds grow in the account. 

HSAs benefit younger and healthier employees. They are also well received by those of at least median income, who use medical services less frequently and choose less-costly services. They are great way for small businesses owners and self-employed workers to get health insurance and save some money for retirement, at the same time. 

Disadvantages
These plans are not a good fit for those in a chronic disease state. You may be attracted to a savings-based plan, but you must be realistic and honest about your health care needs. If you have a chronic disease that requires regular attention, or are prone to make frequent, unnecessary doctor appointments, you would be better off with a quality HMO or PPO plan. 

Because of the donut hole and high-deductible amounts, these plans aren't a good choice for low-income individuals. In an effort to retain savings, some might make the dangerous decision to forego seeing a doctor, or worse, be unable to come up with the deductible amount for a needed surgery.