A Health Savings Account (HSA) is a tax-advantaged medical savings account available to those who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to income tax, but can only be used to pay for qualified medical expenses.
The premium for a HSA plan generally is less than the premium for traditional health insurance. With HSAs, in catastrophic situations the maximum out-of-pocket expense liability can be less than that of a traditional health plan. This is because a qualified HDHP can cover 100% after the deductible, involving no coinsurance.
HSA's also give the flexibility not available in some traditional health plans to pay on a pretax basis for qualified medical expense not covered in standard plans. This may include dental, orthodontics, vision, and non-prescription medications such as aspirin.
HSA accounts also have an advantage over Flexible Spending Accounts since deposits are not necessarily tied to expenses in a particular plan or calendar year, because they are automatically rolled over for future medical expenses over a period of time, if medical expenses are low and contributions are made regularly to the HSA, the account can accumulate significant assets that can be used for health care tax free or used for retirement on a tax-deferred basis.
