Last Updated: 2016-07-06

Health Savings Accounts (HSAs)

Health savings accounts (HSAs) were created by the Medicare Modernization Act signed in December 2003. HSAs allow individuals to save money to pay for current and future medical expenses on a tax-free basis.

By law, HSAs must be coupled with high-deductible health plans (HDHPs). Individuals can withdraw HSA funds tax-free to pay qualified medical expenses (e.g. doctor’s visits, hospital care, dental care, prescription drugs, etc), as defined by the IRS. After the deductible is paid for, HDHP coverage starts, with limited out of pocket expenses also specified by the IRS. Unused deductible amounts remain available in the HSA account, accumulating interest, tax-free.

The IRS has allowed certain kinds of preventive care (e.g. routine prenatal and well-child care, immunizations, annual physicals, smoking cessation programs, obesity weight loss programs, etc) to be offered by HDHPs with little or no deductible.

As of March 2005, 1,031,000 people were covered by HSA/HDHP products. Forrester research forecasts that there will be more than 6 million HSA holders in 2008.