A Health Savings Account (HSA)—an alternative to traditional health insurance—is a savings vehicle that allows individuals to save for future qualified medical and health expenses on a tax-free basis. With a Health Savings Account, individuals pay for current health expenses while also saving for future qualified medical and health expenses on a tax-free basis. Much like a Roth IRA account, a Health Savings Account lets the individual contribute already taxed dollars and make tax free withdrawals assuming those withdrawals are used for qualified medical expenses. Unlike many other tax incentive savings, there aren't any income limits when it comes to funding a Health Savings Account. Anyone under age 65 who buys a qualified high-deductible policy can open a Health Savings Account.

You own and control the money in your HSA
In your Health Savings Account, You decide how to allocate your funds without relying on a third party or a health insurer.

As for limits, in 2007 you can contribute up to $2,850 for individual coverage or $5,650 for families (people age 55 and older can make an extra catch-up contribution of $800 in 2007). Legislation approved by Congress on December 9, 2006 allows for contributions up to these limits even if the insurance deductible is less.

Further, in some cases an employer may offer a Health Savings Account in concert with (or in place of) traditional health insurance, or as part of a section 125(d) cafeteria plan. Some employers may choose to fund all or part of the HSA for you—perhaps even adding a 401(k)-style match in which you would have the ability to take advantage of contributions made by the employer on your behalf.

Outside of your employer, you may be able to set up a HSA through banks, credit unions, or insurance companies independently. You can find a list of health insurance companies offering HSA-eligible plans in your state at www.HSAInsider.com or www.HSADecisions.org. These sites can be used to compare several companies policies. The list of companies offering HSA-eligible plans continues to grow every month so be sure and do your research if you are planning to open a Health Savings Account independent of your employer.

What happens after you retire?
Upon retirement or separation from service you may use any surplus assets (i.e., those not used for medical expenses) in your Health Savings Account to supplement other sources of retirement income. The additional assets may provide the capital you need to help you live during your retirement years. 

After you retire, in addition to using your health savings account for medical expenses, these assets can be used to meet the expense of nursing care or to purchase a long-term-care policy.

When you retire or separate from service, similar to a retirement plan, you may keep the money in your HSA account—however, if any of the money is used for non-medical expenses before age 65, a 10 percent penalty will apply in addition to any tax liability.

Although you cannot make new HSA contributions after age 65, you can still use the money in your account tax-free for medical expenses at any age.  If you pass away, and the named beneficiary in your will is your spouse, he or she can continue to access the Health Savings Accounts funds tax-free for medical expenses, paying income taxes on any non-medical expense. If your beneficiary is anyone else, then they will generally owe income taxes when the assets move to them, but no penalty.

By providing a different way for you to pay for current health expenses while also allowing you to save for future qualified medical and retiree health expenses, the HSA is becoming a very popular choice for employers and individuals alike with regard the complex and expensive universe of Health Care. Opening a Health Savings Account may be a great alternative or supplement to your traditional health insurance.