One of the most attractive and misunderstood types of savings account is the health savings account or HSA, which can be used to save employees money on a lifetime of medical expenses.

An HSA is a triple tax-advantaged savings account attached to a High Deductible Health Plan (HDHP). Employees with HDHPs that meet eligibility requirements may:

• Contribute to an HSA on a pre-tax basis. This means reducing taxable income which means reducing taxes. In 2023 employees may contribute up to $3,850 for individuals or $7,750 for a family plus an additional $1,000 in "catch up" contributions if age 55 or older.
• Withdraw funds from their HSA to pay for eligible health care expenses tax-free or save for future eligible healthcare expenses, including those incurred in retirement.
• Invest the money that accumulates in their HSA.
• Earn tax-free interest on their HSA's cash balance and tax-free earnings on any HSA invested funds.

Next, let's consider what an HSA can be used for. Which expenses are eligible for reimbursement? Employees can use their HSA to pay for many different types of health care expenses, including:

• Medical, dental and vision coinsurance, deductibles, and copays
• Hearing aids, smoking cessation programs, wheelchairs, organ transplants and certain long-term care insurance premiums
• COBRA continuation health coverage premiums and Medicare premiums (excluding Medicare supplement plans) for HSA holders aged 65 or older

Now for the fun part, how can employees save money with an HSA? Any medical expense that's run through an HSA enjoys, on average, a 30% discount. The way this works is an employee makes a contribution to their HSA through their paycheck and then simply pays for an eligible out-of-pocket medical expense using their HSA funds. The savings occurs by virtue of those HSA contributions being pre-tax, which really means tax-free, and the savings is realized immediately.