A Health Savings Account (HSA) is a new form of consumer directed health coverage pairing a high deductible health plan with a tax-free savings account. Designed to reduce healthcare insurance costs for employers and employees, the high deductible policy provides protection against major medical expenses - the HSA is used to pay for day-to-day medical expenses.
The savings product offers individuals an alternative method of paying for their health care. HSAs enable individuals to pay for qualified medical expenses on a tax-favored basis. Contributions are tax-deductible and eligible contributions are tax-free.
Individuals control the money in their HSA. Decisions on how to spend the money are made by the individual without relying on a third party or a health insurer. Funds not spent can carry forward to future years and be used penalty-free after age 65 for any purpose seen fit.
Advantages of Heath Savings Accounts:
- Security-High deductible insurance in conjunction with a Health Savings Account protects against high or unexpected medical bills.
- Affordability-Lower health insurance premiums by switching to health insurance with a higher deductible.
- Flexibility-Utilize funds to pay for current medical expenses, including expenses that an insurance policy may not cover, or save the money in the account for future needs.
- Savings-Earn interest on money in an HSA for future medical expenses and grow your account year after year, just like an IRA. There are no "use it or lose it" rules for HSAs.
- Control-Make all the decisions about how much to put into the account and how to spend the money.
- Portability-Accounts are completely portable. Keep and HSA in the event of a job change, medical coverage change, become unemployed, move to another state or change marital status.
- Tax Savings-An HSA provides triple tax savings: tax deductible contributions, tax-free earnings and tax-free withdrawals for qualified medical expenses.