What exactly are 'health savings accounts?' Also referred to as HSA, such accounts enable the taxpayers in US to save money and yet get themselves covered for current and future medical expenses. The prime benefit is that a taxpayer can deposit the money in to it before paying the tax and then after it is done, the person is able to withdraw it to pay for medical expenses.

Previously health savings accounts were known as medical savings accounts. In the changed plan, the deductibles were decreased and it was extended so that more people could take advantage of it. These changes finalized and made in to a legislation that was signed by President George W. Bush on December 8th 2003.

Advantages of health savings accounts

Medical benefits: Its simplicity is a big advantage as it allows 100% coinsurance after the deductible is met. The fact that there is also only 1 deductible per family makes it even simpler.

Savings: The person can leverage the savings to help pay the deductible and for medical expenses that are not covered like dental care and vision therapy. And the savings that is not spent remains in the account.

Tax benefits: Any amount of money that is contributed by the payer to the health savings account is 100% tax deductible. That is, there will be no tax on it. And the best part is that, any withdrawals from this account for medical expenses are never taxed as well. That is not all - there's more to it. All interest earnings from the account is tax deferred as well, and if it is used for medical expenses, then it becomes completely tax free. So the entire scheme is tax favored, which is very good news for the account holder.

Who is eligible to open a 'health savings account'?

1. Any person who is covered under a high-deductible health plan.
2. Anyone who is not also covered by any other health plan that is not a HDHP. There are however a few exceptions.
3. Anyone who is not entitled to benefits under Medicare.
4. Any person who is not dependent on another person's tax return.