A Health Savings Account - HSA, is a medical account that has a medical benefit. This savings account is made available to taxpayers in U.S who are registered in HDHP (High Deductible Health Plan). At the time of deposit, the funds contributed to this account are not made subject to federal income tax. Contrary to the Flexible Spending account (FSA), funds roll over and build up year to year when it is not spent.

Individuals own HSAs. This makes them different from the company-owned Health Reimbursement Arrangement – which is an alternate tax-deductible source of funds paired with Health Reimbursement Arrangement. Qualified medical expenses may be paid at any time using the fund without incurring any federal tax liability. Non-medical expenses made with the fund withdrawn from the account are treated in a way similar to the ones in an IRA, owing to the fact that they are capable of providing tax benefits if withdrawn after retirement age; they attract penalties when they are withdrawn earlier. These account types are a part of consumer type of health care.

How the Account Functions – Deposits
Deposits made to a Health Savings Account could be done by any policy holder of an HAS-eligible high deductible health plan or by their employer or any other individual. When an employer deposits to this plan on the behalf of the employees, non discrimination rule is also applicable; in essence, there will be equal treatment meted out to all the employees. But, if the contributions are achieved via a Section 125 plan, the non discrimination rules are not applicable and employers can treat individual and family participants in different ways. The treatment of workers who are not registered in a HAS-eligible high deductible plan is taken for the purpose of non-discrimination purposes.

Contributions coming from an employer or employee could be made based on pre-tax via an employer. If this option cannot be made possible through the employer, contributions may be done on a post-tax basis and subsequently used to reduce gross taxable income on the subsequent year’s form 1040. The major benefit of making pre-tax contributions is the FICA and Medicare Tax deduction, which leads to a savings of 7.65 percent each to the employer and employee. Self-employment tax must be paid by the self-employed on their contributions. In spite of the technique or tax savings associated with the deposit, the deposit is only possible for those covered under the Health Savings Account-eligible high-deductible plan, without any other coverage further than certain qualified extra coverage.

Advantages
Generally, the premium for an HDHP is less when compared with the premium for a conventional health insurance. A deductible that is higher reduces the premium since the insurance company do not pay for routine healthcare again, and the insurance underwriters are of the opinion that if American citizens perceive the relationship between medical cost  and their bank accounts, they will embark on reduced medical care consumption, search out for options that offer lower cost and be more watchful against deception and excesses in the health-care industry.