HSA: What is a Health Savings Account?

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A Health Savings Account (H.S.A.) is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care.  HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

There are two parts to an HSA plan.  You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs.  A High Deductible Health Plan generally costs less than what traditional low deductible, co-pay health care coverage costs, so the money that you save on your health insurance premium can then be put into the Health Savings Account.

You own and you control the money in your HSA.  Decisions on how to spend the money are made by you without relying on a third party or a health insurer.  You will also decide what types of investments to make with the money in the account in order to make it grow.

The money in the HSA account will roll over from year to year; you will not lose any contributions to your HSA account.  Again, it is your money, you control it.

HSAs are similar to an IRA, except the HSA funds are used toward medical expenses.  All contributions are tax-free, and you will never be charged taxes as long as you spend the funds on qualified medical expense.  If you withdraw funds for any reason other than qualified medical expenses, the money will become subject to both income tax and a ten percent IRS penalty.  There is one exception, when you become 65 years of age or older, you may then withdraw the money without penalty.  The withdrawal will still be subject to income tax.