A Health Savings Account (HSA) is a high deductible health insurance plan with an IRA-like savings account. The minimum deductible is $1,100 per person and $2,200 per family. Contributions are limited to $2,850 per individual per year and $5,650 per family. Previously, contributions were limited to the amount of the deductible. Those rules were changed for 2007.

Money is withdrawn to pay approved medical expenses. The account is owned by the employee and it is portable. Similar to an IRA, the funds stay with the employee. Interest is earned on the money in the account. A high deductible health insurance policy must be purchased to coordinate with the HSA account. Most insurance carriers offer the high deductible insurance policy with a HSA account in place.

The advantage of the HSA plan is the ability to save premium dollars by purchasing the high-deductible insurance policy. A portion of that savings can be invested in the HSA account to earn interest. If the funds are not used for medical expenses, the fund continues to grow. Employees using their own money to pay medical expenses tend to become better consumers. The employee has a better understanding of the cost to be sick and the choices available.

A similar product is a Health Reimbursement Account (HRA). This plan also requires a PPO insurance policy with a deductible. The employee does not contribute to a HRA. The employer contributes all of the money to the HRA account but it is for the use of the employee and it does continue to build funds from year to year until the employee resigns. There are fewer restrictions on the type of insurance policy that must be purchased. The employee does not own the account so it is not portable.