Health Savings Accounts (HSA's) are a recently available way people can pay for un-reimbursed medical expenses (deductibles, co-payments, and services not covered by insurance) on a tax-advantaged basis. HSA's can be established and funded by eligible individuals when they have a qualifying high deductible health plan and no other health plan, with some exceptions. For 2007, the deductible for self-only coverage must be at least $1,100 (with an annual out-of-pocket limit not exceeding $5,500); the deductible for family coverage must be at least $2,200 (with an annual out-of-pocket limit not exceeding $11,000). 

The annual HSA contribution limit in 2007 for individuals with self-only coverage is $2,850. For family coverage, the annual contribution limit is $5,650. Individuals who are at least 55 years of age but not yet eligible for Medicare may contribute an additional $800. 

The tax advantages of HSA's can be significant for some people: contributions are deductible (or excluded from income that is taxable if made by employers), withdrawals are not taxed if used for medical expenses, and account earnings are tax exempt. Unused balances may accumulate without limit. 

HSA's and the accompanying high deductible health plans are one form of what some call “consumer-driven health plans.” One objective of these plans is to encourage individuals and families to set money aside for their health care expenses. Another is to give them a financial incentive for spending health care dollars prudently. Still another goal is to give them the means to pay for health care services of their own choosing, without constraint by insurers or employers. Since HSA's are relatively new, the extent to which they will further these objectives is not yet known. Among other things, it remains to be seen how many people will eventually establish accounts, how much they will contribute to them, and how much they will carry over to subsequent years.

**information provided by the Congressional Research Service**