A health savings account is a special purpose financial account that allows a consumer to save and pay for medical expenses on a tax-favored basis. Funds deposited into an HSA are not taxed; the funds in the account grow tax free; and the money accumulated in the account can be withdrawn tax free to pay for qualifying medical expenses. In effect, an HSA owner uses the account in a manner similar to a checking account to cover his or her (or his or her family’s) medical expenses. There are no income restrictions or requirements on who may or may not open and contribute to an HSA.
The HSA—the account and its funds—belongs to the individual. Contributions to an HSA can be made by the individual owner, by an employer, or by anyone on behalf of the individual owner. Any unused account balances and interest earnings carry forward from year to year; the money is never forfeited.
HSAs Require HDHPs
Health savings accounts do not stand on their own. The federal legislation that authorized HSAs stipulates that they must be established and used in conjunction with a qualified high-deductible health plan that meets certain requirements. An HDHP that meets these requirements is referred to as “qualified” or as an “HSA-compatible” plan. Consequently, understanding HSAs requires understanding qualified HDHPs.
Questions about HSA’s or qualified HDHP’s can be answered by your Total Benefit Solutions, Inc health insurance specialists at (215)355-2121