Health Savings Accounts (HSA) allow you to save money in order to pay health expenses in a tax free account. They are similar to an IRA but are for health expenses.
Eligibility is limited to those with high deductible health care plans.
HSA funds can be saved over the years. Flexible spending accounts are somewhat similar but that money can not be rolled from one year to the next. The idea with HSA is you can save money in good years so you have money to pay health care expenses in years when you have them.
Health Savings Accounts are meant to cover deductibles, co-pays, uncovered health needs etc. that those stuck with the current USA health care system have to deal with. HSA are best used by people who are healthy, as the idea is to save up money during healthy years so there is a cushion of funds to pay health expenses later.
Health Savings Accounts are not a substitute for health care insurance. The health care system in the USA is so exorbitantly expensive only the very richest could save enough even for relatively minor health needs that are free to all citizens in most rich countries. HSA are legally available to you without health insurance but doing without health insurance in the USA is a disastrous personal financial action in the USA.
And the system is even worse in having ludicrously high charges that all insurance companies get huge discounts on. But if you try to use the USA health system without insurance the unconscionable charges that no insurance company pays will be billed to you. Even if your insurance company paid nothing, the reduction in fees just due to providers not charging the massive uninsured premium charges is critical.
Your HSA contribution is taken out of your paycheck on a pre-tax basis and grows tax deferred.
Withdrawals from an HSA for qualified medical expenses are free from federal income tax. At age 65, you can withdraw money from the HSA to use in retirement for expenses not related to health care. You will owe taxes at this time, but no penalty.
Related: 2015 Health Care Price Report, Costs in the USA and Elsewhere – Health Insurance Considerations for Digital Nomads – Personal Finance Basics: Health Insurance