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07/27/2008

Understanding Personal Finance Terms

Part V: Health Care Finances

In this final part of the personal finance series, we will explore the different options available to help pay for medical/health care costs other then health insurance. We all know the expense that we put out on a monthly basis to pay for medical coverage. And then when something goes wrong, we end up paying astronomical deductibles in order to be seen. Well, there are many options available to help ease the personal financial burden of these costs. They are as follows:

· Health Savings Account (HSA): This is a type of savings account that is used to help individuals with high deductible health insurance pay the deductibles. Basically this is an account that is opened and money is put in pre-tax to help pay for medical expenses. You are only allowed to have so much money in the account ($2650 for individuals and $5250 for families). When you withdraw money from the account to pay a medical expense it is tax free. If you withdraw money from the account for other nonmedical things then you will be penalized (unless you are over the age of 65).

· Medical Savings Account (MSA): This is another type of account that is used to help save money to pay medical expenses. Only those who have medical insurance with extremely high deductibles (your insurance company requires that you pay the first $1500 or more dollars before your coverage kicks in. The money in the MSA account will help pay for this out of pocket expense without breaking you bank. This type of coverage is open only to the self employed or companies who have less then 50 employees.

· Flexible Spending Account (FSA): These are accounts that are set up through what is called a cafeteria plan. This is a benefit plan that allows employees to choose different benefits for their money to be used for. This is usually done through a salary reduction agreement. Each paycheck an amount is taken out before taxes and placed into a FSA. The money in this account can then be used for medical expense, dependent care and can even pay for life insurance.

· Health Reimbursement Account (HRA): This type of account is when an employer is allowed to reimburse an employee for medical expenses that they paid out of pocket (copayment, deductibles, medications and medical services). This type of account is IRS sanctioned.

Finding money to pay for medical bills that the insurance company does not cover can be quite stressful. By understanding the different types of accounts available to help defray some of the high medical costs, you can determine which ones are available to you and start saving a ton of money on your medical bills. By arming yourself with knowledge you can continues to make wise choices towards your personal finances.

Julianne Alzamora has 7 years of experience as a freelance writer. Her articles can be seen in several financial websites about investing, investment strategy, personal finance and topics on real estate.





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