A health savings account can be set up by any adult who is covered under a qualified high deductible health plan. Money is contributed into the health savings account by the individual, their employer, or both. Money is not lost at the end of the year if it isn't used; it rolls over to the next year. The health savings account is portable so if an individual leaves their employer they can take this account with them. Money from the account is used to pay for qualified medical expenses not covered under the health plan due to the deductible or co-insurance. You can also used money for other qualified expenses as permitted under federal tax law. This includes dental, vision and also over the counter drugs.
The savings account has several tax advantages:
1. The individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions
2. The individual's employer can make contributions tat are not taxed to either the employer or employee
3. Employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction
4. Earnings in the account are tax free
5. Funds distributed from the HSA are not taxed as long as they are used for qualified medical expenses
