Health Insurance Mastery Practice Exam

What is the primary purpose of a health savings account (HSA)?

1. To serve as a tax-advantaged investment account

2. To provide a means for retirement savings

3. To serve as a tax-favored way to accumulate funds to cover medical expenses

4. To manage health insurance premiums

The correct answer is: To serve as a tax-favored way to accumulate funds to cover medical expenses

The primary purpose of a health savings account (HSA) is to provide a tax-favored way to accumulate funds specifically for covering qualified medical expenses. HSAs are designed to help individuals save money that is intended for healthcare costs, with the significant advantage of tax benefits. Contributions made to an HSA are typically tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are also tax-free. This triple tax advantage makes HSAs an effective financial tool for managing health expenses while encouraging individuals to save and invest for future healthcare needs. Additionally, HSAs require that individuals be enrolled in a high-deductible health plan (HDHP), which is intended to create a direct incentive for users to take a more active role in their healthcare expenses. The funds in an HSA can roll over from year to year, providing flexibility and the potential to accumulate significant savings over time for both unforeseen expenses and planned medical costs. While HSAs do allow for some investment options, and can contribute to retirement savings under specific conditions, the foundational purpose remains focused on covering medical expenses. This differentiation is crucial for a complete understanding of HSAs and their function within the broader framework of healthcare financing.