Health Savings Accounts (HSAs) were created by H. R. 1, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," signed into law by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

New innovative Health Savings Accounts will change the way millions can save to meet their health care needs.

Any individual who is covered by an HSA qualified high-deductible health plan may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year). Tax-advantaged contributions can be made in three ways: the individual and family members can make tax deductible contributions to an HSA, the individual’s employer can make contributions, and employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan. Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses. To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($800 in 2007, $900 in 2008, and 2009 and on $1,000) to their HSAs. Individuals eligible for Medicare, may not contribute to an HSA.

Tax-advantaged contributions can be made in three ways: