Health Savings Account (HSA)
 

I was more or less talked into starting an HSA awhile back and can't remember why since I haven't used it. If you've also been doing it, how has your experience been? What do you know about it?

As far as I know its just an account that allows you to put pre tax dollars in but it can only be spent on medical expenses... Use the account to pay co pays, over the counter drugs, prescriptions, etc. Anything medical related.

HSAs are high-deductible plans. You pay regular monthly premiums, and can additionally contribute to a health savings account, up to a set limit each year. You can use the money in that account for your medical expenses (or you can let the money accumulate tax-free, similar to an IRA).
HSAs basically have two benefits.
1. Since your deductible is very high, your monthly premiums are much lower than for other "quality" plans.
2. You contribute pre-tax dollars, so there are very nice tax advantages.
There used to be a third benefit, which was that you could spend your HSA dollars on medical-related expenses other than doctors or prescriptions (for example, vitamins or bandaids) but that's been severely restricted as of 2011.

Most people who benefit from HSAs are people who are healthy - they benefit from the lower premiums and can afford the out-of-pocket costs for their regular medical care. The insurance is just that - for catastrophic expenses. Those people often use the HSA as an additional investment vehicle.

However, I use it in just the opposite way. We have extremely high medical expenses - and the way the numbers work, we actually benefit from an HSA, because of the lower premiums. We've already hit our high-limit dedictible for 2011, and will hit our out-of-pocket maximums later in the year. Once we get to the out-of-pocket max, we'll pay zero for the rest of the year - except for our premiums which are much lower than they would be for a "normal" health plan.

Bottom line: talk to a professional who can help you figure out what works best for you. It isn't always a simple decision to make - I'm just about the last person that the "textbook" would say should get an HSA.