What does a 'health savings account' (HSA) offer?

A health savings account (HSA) is designed specifically to provide individuals with a tax-advantaged way to save for medical expenses. Contributions made to an HSA can be deducted from taxable income, reducing overall tax liability. Funds in the account can be used tax-free for qualifying medical expenses, such as copayments, deductibles, and other out-of-pocket costs associated with healthcare. This makes HSAs particularly beneficial for individuals who have high-deductible health plans (HDHPs) as they can effectively manage their healthcare costs while enjoying tax benefits.

In contrast to other financial products, an HSA is not intended for purchasing life insurance policies, serving as a mandatory retirement fund for healthcare professionals, or as an investment account specifically for health insurance premiums. Each of these aspects focuses on different financial needs and goals that do not align with the primary purpose of a health savings account, which is centered around managing current healthcare expenses in a tax-effective manner.