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A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. more...

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Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA account in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.

Proponents of HSAs believe that they are an important reform that will help reduce the growth of health care costs and increase the efficiency of the health care system. According to proponents, HSAs encourage saving for future health care expenses, allow the patient to receive needed care without a gate keeper to determine what benefits are allowed and make consumers more responsible for their own health care choices through the required High-Deductible Health Plan.

Opponents of HSAs say they worsen, rather than improve, the U.S. health system's problems because people who are healthy will leave insurance plans while people who have health problems will avoid HSAs. There is also debate about consumer satisfaction with these plans.

History

HSAs were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act which was signed into law by President George W. Bush on December 8, 2003. They were developed as an improvement over the Medical Savings Account system.

By 2007, consumer-driven health plans, including both those with HSAs and those with Health Reimbursement Accounts, had made only a small inroad into the employer-provided health benefit market, according to a study done by the Kaiser Family Foundation. An estimated 3.8 million U.S. workers, about 5 percent of the covered workforce, were enrolled in consumer-driven plans. The study found that about 10 percent of firms offered such plans to their workers. A survey of health insurers performed by America’s Health Insurance Plans found that 4.5 million Americans were covered by HSAs as of January 2007. Of those, 3.4 million were covered through employer sponsored plans, and 1.1 million were covered by individually purchased HSAs. This represented an increase of 1.3 million since January 2006. In the individual market, 25% of new purchasers bought HSA products. HSAs represented 17% of new policies sold in the small group market and 8% of new policies sold in the large group market.

In 2008, market research firm Celent moderated its earlier projections, citing the HSA market's "disappointing early showing", and projected 12.5 million accounts by 2012.

Read more at Wikipedia.org