A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account. You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added section 223 to the Internal Revenue Code to permit eligible individuals to establish health savings accounts (HSAs) beginning January 1, 2004. An HSA allows individuals to pay for eligible health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. An HSA is similar to an Individual Retirement Account ("IRA"). Like an IRA, an HSA is established for the benefit of an individual, is owned by that individual, and is portable. Thus, if the individual is an employee who changes employers or leaves employment, the HSA stays with the individual. However, an IRA cannot be used as an HSA nor can you combine an IRA and an HSA in a single account.

HSAs began as a pilot program in 1996. The early versions went by the names Medical Savings Accounts or Archer Savings Accounts. Approximately 1.5 million Americans took part in this program. By 2001, it proved to be a success, and Congress decided to open up the program further. Beginning on January 1, 2004, individuals under the age of 65, who are eligible for Medicare but who are not enrolled in Medicare Part A or B, remain eligible to contribute to an HSA if they have a High Deductible Health Plan (HDHP).
 

HSAs are an evolutionary step from existing government legislation creating medical savings accounts. A great deal of bipartisan thinking that has gone into the passage, by Congress and the President, of this law. Any law can be modified or repealed. If anything, it appears that lawmakers are focusing on ways to increase the tax benefits of owning HSAs (such as tax credits for employers), not limiting them.