What is HSA?

Health savings accounts, or HSA, let people put aside money tax-free that can be used to pay health expenses. The accounts must be paired with high-deductible health insurance policies.

HSAs were created in 2003. To qualify for tax breaks under the current rules, the insurance deductible must be at least $1,050 for an individual, or $2,100 for a family. Users of HSAs pay no tax on the money they deposit into the accounts or on any investment gains. Withdrawals also are tax-free if they are used to cover medical expenses.

They can be used for any expense that the Internal Revenue Service allows as a qualified medical expense. The money carries over to the next year and continue to accrue interest. If you die, the remaining funds pass to your heir.

In his State of the Union address on January 31st, President Bush urged Congress to expand health savings accounts. He wants to increase the tax breaks to make the program more attractive. For example, he would let HSA users pay their insurance premiums with money in their accounts. That would boost the tax advantage because, under current rules, many people pay premiums with after-tax dollars. In addition, Bush wants to increase the amount of money that one could deposit each year in an HSA.

A number of health care advocates and labor groups point out that Bush's plan does little to address the problem of making medical care more affordable for the unemployed or lower-income people who can't afford a high deductible. On the other hand, many employers, health insurers and financial institutions support HSAs, saying they give individuals more control over their own healthcare dollars.

The White House estimates that 3 million Americans now have HSAs. But if Congress were to expand the tax breaks, that figure could rise to 21 million by 2010.