The Health Savings Account (HSA) is a financial plan as revolutionary in its simplicity as it is practical to implement.  It is a very simple, common sense approach to funding routine health care needs with a tax deductible savings account paired with a qualified High Deductible Health Plan (HDHP).  Rather than pay a large premium for very comprehensive insurance coverage, the HSA divides that large premium into two parts, the more basic and affortable High Deductible Health Plan (HDHP), and a tax-deductible Health Savings Account (HSA).  As long as the HDHP is in effect, the policy owner may establish the Helath Savings Account and tax-deduct the deposits.

What is an HSA?

Health Savings Accounts (HSAs) are speical tax-exempt trusts or custodial accounts established under Internal Revenue Code Section 223 that are used for paying medical expenses.  HSAs work hand-in-hand with a high deductible health plan.

In some ways, HSAs are very similar to IRAs.  For example, as with IRAs, the money in an HSA cannot be invested in life insurance and is non-forfeitable.  However, HSAs are not identical to IRAs in all respects.  Taxpayers cannnot combine IRA and HSA contributions into the same account or move assets from one to another.

Depending on an individuals situation, contributions to an HSA may be made by the individual, the employer, or both.  Contributions are deductible or excludable from the individuals gross income.  Individuals, rather than the account custodians, need to determine whether funds from HSAs are used for qualified medical expenses.

Who is eligible for an HSA?

• An employee (or spouse of an employee) of any employer that maintains an individual or family "high deductible health plan" covering that individual (or the employee or spouse)