What is the purpose of a 'Health Savings Account' (HSA)?

A Health Savings Account (HSA) is specifically designed to allow individuals to save tax-free money to pay for qualified medical expenses. This account can be funded with pre-tax dollars, meaning that the money deposited into an HSA reduces the individual's taxable income for the year. The funds accumulated in an HSA can then be used to cover various healthcare costs, such as deductibles, copayments, and other out-of-pocket expenses without incurring taxes on withdrawals, as long as they are used for eligible medical expenses.

In addition to its tax benefits, an HSA also encourages individuals to save and take an active role in managing their healthcare costs. The money in the account can roll over from year to year, making it a flexible option for long-term healthcare savings. Additionally, individuals can invest funds in their HSA, leading to potential growth over time, which can be especially beneficial as medical costs typically rise.

This account is distinct from other financial tools. For instance, using an HSA solely for retirement expenses, non-medical expenditures, or as a loan for medical procedures does not align with the fundamental purpose of the account, which is to assist in managing medical expenses efficiently and tax-effectively. Hence, the purpose of an HSA is