How does a HSA work?

Legislation establishing Health Savings Accounts (HSA) took effect on January 1, 2004.  HSAs and HSA eligible health insurance plans are becoming more and more popular.  Here are the basics:

  • A HSA is a tax-favored savings account that may be used in conjunction with a HSA-elgibile high deductible health insurance plan to pay for qualifying medical expenses.
  • Choosing an HSA-elgible plan may help you save money.  Typically, the monthly premium on an HSA-elgible high deductible plan is less expensive than the monthly premium for a lower deductible insurance plan.
  • Contributions to an HSA may be made pre-tax, up to a certain annual limit.
  • Funds in the HSA may be invested at your discretion.  unused funds remain in the account and accrue interest year-to-year, tax free.
  • Not all high-deductible plans are elgibile for use in conjunction with a HSA.