HSAs, created as part of the Medicare reform in December 2003, are tax free savings accounts that can be used to pay for medical expenses incurred by individuals, their spouses or their dependents.

Individuals, their employers, or both can contribute funds each year to HSAs. Contributions are tax free. Interest and investment earnings are tax free. Withdrawals for qualified medical expenses are tax free.

HSAs can save their owners up to 40 percent in out-of-pocket medical expenses. HSAs will make it easier for small business owners to purchase health insurance for their employees, resulting in lower premiums.

HSAs offer choice: Participants can spend their money on health care services that they want, when they want them. No one can tell them how to spend their HSA money or what doctor can treat them.

HSAs are portable, so a worker does not have to depend on a particular employer to enjoy the benefits of having an HSA. Like Individual Retirement Accounts, HSAs are owned by the individual, not the employer. If a worker changes jobs, the HAS account goes with him or her.

To set up an HSA account, a worker or his employer must first obtain a high-deductible insurance policy to cover major medical expenses. The premiums for such high deductible plans are much lower than traditional plans, but they provide coverage for surgery, hospital stays and other large expenses. Having obtained coverage for major medical bills, workers can cover routine medical expenses – such as visits to the doctor, or over-the-counter drugs – by setting up an HAS of up to $2,600 for an individual, or $5,150 for a family (indexed annually for inflation).