In their first year on the market, HSAs attracted thousands of individuals and business owners eager to escape the runaway costs of health insurance. Now, more than 1.5 million people are enrolled in HSAs. William Boyles, publisher of an insurance industry newsletter, predicts that 20 million people will be enrolled within five years. The new law makes HSAs permanent and available to everyone - individuals, business owners, and employees. And don't confuse HSAs with their predecessor, the Flexible Savings Account. HSAs are the next generation of tax-favored medical insurance.
In conjunction with the insurance policy, you open a dedicated savings account in which you make tax-deductible deposits to pay for your medical care. Each year, you may deposit up to the amount of the deductible on your insurance policy. You then use the money in the account to pay for your medical care. Once your expense reaches the amount of your deductible, if it does, the insurance policy kicks in.