A health savings account, or HSA, is a program where an individual contributes funds into a tax-advantaged account to pay for qualified medical expenses. The contributions are made with tax-free dollars and, while in the HSA account, may acquire interest. Further, when HSA funds are spent, they are not taxed so long as the funds are used for qualified medical expenses.
An HSA is used in conjunction with insurance coverage. Specifically, it is available for individuals enrolled in high deductible health plans (HDHP). While HDHPs have larger out-of-pocket obligations than traditional health plans, they also have lower premiums.
Qualified expenses include many out-of-pocket expenses such as copayments and deductibles, but health insurance premiums are not eligible for HSA use. The Internal Revenue Service (IRS) outlines the services and products that count as HSA-allowable medical expenses within their publication number #969.
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