tax-advantaged savings plan that covers current and future medical expenses. A health savings account (HSA; formerly medical savings accounts) has two main components: 1) a high-deductible health insurance plan purchased from an insurance company; 2) a savings account at a commercial bank or savings institution similar to an individual retirement account. Self-employed individuals and individuals who are not covered by another qualified health insurance plan (or who have not yet enrolled in the federal Medicare health insurance program) can make tax deductible contributions up to $2,650 ($5,250 for families) annually.
Health savings account earnings accumulate tax-free, and withdrawals for qualified medical expenses are also tax-free. Individuals age fifty-five or older can increase their annual HSA contributions by an additional $700 in 2006, $800 in 2007, $900 in 2008, and $1,000 annually starting in 2009. Contributions for any year may be made any time up to the April 15 tax filing deadline. Health savings accounts, authorized by federal legislation enacted in 2003, are designed to pay for medical expenses covered by the insurance policy until the insurance deductible ($1,000 for individuals and $2,000 for a family) are met. Once the deductible limit has been reached, the insurance policy pays for medical expenses exceeding the policy deductible.
