When I first became familiar with Health Savings Accounts it immediately made sense to me. Get a higher deductible health insurance plan ($1200+ deductible) and set aside the money you save on premiums in a tax advantaged savings account. If you have health care expenses that fall under your deductible, use the money in your health savings account. If you have money that you didn’t use at the end of the year it rolls over into the next year instead of losing it like a flex plan. In fact, most HSA custodians now offer investment options once your account reaches $2500 so you can treat it like another retirement account.

Additionally, there is a 20% penalty for using the money for non-medical purposes prior to age 65 but those disappear once you hit medicare age. In other words your Health Savings Account can be an additional source of retirement funds if you live a fairly health lifestyle and didn’t need to use all of the money you contribute. My wife and I don’t go to the clinic much except for our (free) annual physicals and to take our children in when they are running fevers etc. Therefore, after 3 years on the plan we have an extra $6000 sitting in the account. Her employer contributes to our plan each month in addition to our contribution so we contribute the maximum on an annual basis. Not only are we saving a tremendous amount of money that previously went to the insurance company, but we have this pool of money that will most likely continue to grow for the next 20 years.

Obviously when there are medical issues, the money will be used properly. However, if we continue to take care of ourselves there is a great chance that it will be an extra pot at the end of the rainbow. Since it grows tax deferred the entire time, it’s a great way to divert some cash from the insurance companies pocket into your own!