Medical Savings Accounts and Health Savings Accounts

You can open a health savings account (HSA) at any bank that offers it. Some of them even offer an account tied to investments. In some cases, you can open an account without even making a deposit. If you choose a health savings account with options, the bank could charge a fee. If you don't want an official health savings account, you can make your own emergency savings at your bank. Just open a separate savings account. Transfer a set amount per week, bi-weekly or monthly into the account.

A health savings account is a financial tool that you can use to manage healthcare expenses. It is administered by the Internal Revenue Service (IRS) and gives you a great way to build a financial safety net. The account also has tax advantages and is designed for individuals who have a health plan with a high deductible, lower premiums and high out-of-pocket costs.

When you contribute to a HAS, it is tax-deductible – you can reduce your taxable income by contributing to a health savings account. Additionally, as of this writing, any interest or investment gains in your health savings account are tax-free. 

The IRS allows you to contribute a specific amount per year to your health savings account. Those contributions are not subject to federal income tax, which means you can reduce your taxable income while building a reserve for future medical expenses. Furthermore, any qualified withdrawals for medical expenses are also tax-free.

You can carry your account balance from year to year, giving you the ability to use a HAS for long-term health and financial planning. As you age, you can accumulate quite a substantial balance to use for healthcare issues when you retire.

Some providers offer investment options within your health savings account. When you invest your health savings account funds in various financial instruments, you could possibly see higher returns over time. As long as you use the gains for qualified medical expenses, they remain tax-free. 

​When you sign up for a health insurance policy, the deductible is often high, especially if you opted for a lower monthly premium. As with all types of insurance policies, the lower your deductible, the higher your monthly premiums. Deductibles could be as high as $5,000 and more. Some people would be hard-pressed to come up with $5,000 if they had a medical emergency that had to meet the deductible, but they have to choose a high deductible to obtain affordable premiums.

Additionally, the way your health insurance is structured could mean that you have to come out of pocket for co-payments, high prescription drug costs and other costs. When you have a separate savings account for health care, you'll have that money stashed for unforeseen emergencies or for when you hit the doughnut hole.

Finally, many people do not qualify for government programs and cannot afford to purchase health insurance, despite the promises of the Obama administration. For those, a trip to the doctor for something minor could spin their finances out of control or ruin their credit. A savings account, whether an unofficial or official health savings account, creates a comfortable buffer and reduces financial stress should they need medical care.

​Even when your budget is tight, you can start saving. If you don't have a budget that you follow, the first step is to create a budget. Go through your bank account and look at what you spent last month. Create categories and put each transaction into its category. Creating a budget is the easiest way to see where you might be able to cut back.

You might choose categories such as house-related for mortgage or rent, home or renter's insurance if it's not included in your monthly payment, and what you spend on home maintenance. Another category would be utilities – list all of the utilities you pay, including internet, cable and cell phone bills.

Keep groceries separate from everything else. Also, make a separate category for eating out. Don't forget those minor stops, such as those for coffee. Once you have everything categorized, you can better see where you can cut to use that money for a health savings account or a separate medical savings account. Bankrate has additional tips for saving on a budget. Adjust their figures to match your own. For example, Bankrate uses $3,500 for monthly income. If your monthly income is $1,750, then divide all of Bankrate's numbers in half. 

As long as you adhere to the IRS guidelines for health savings accounts, you can enjoy significant tax benefits. Opening and contributing to a health savings account allows you to contribute to your physical and financial well-being. Good luck with starting a new health savings account or an unofficial medical savings account.