by beconrad

With the price of medical care on the rise, it has never been more important for consumers to shop around for the best deal. Even those with health insurance often have trouble paying the high deductibles and co-payments, so setting money aside for those expenses can make a lot of sense. A health savings account, or HSA, does just that, allowing consumers to set aside pre-tax dollars to pay medical expenses, including co-payments, deductibles and over-the-counter medication costs.

But in order to get the most out of our HSA account and avoid the ire of the IRS, you need to understand which expenses are covered by the account and which are not. If you spend HSA money on items that are not considered medical in nature, you may be required to pay additional taxes, along with applicable penalties.

In a nutshell, a health savings account can be used to pay for any medical expenses not covered by your medical plan. In order to qualify for an HSA in the first place, you must first enroll in a high deductible health plan, known in the industry as an HDHP. The good news is that these plans are generally less costly than traditional health care plans, and when coupled with the tax savings provided by the HSA account, the savings can be quite substantial.

Of course the high deductible part of the HDHP name can be a problem for many people, and that is where the health savings account comes into play. After all, few people have thousands of dollars to shell out on doctor visits, prescription drugs and other medical necessities. By funding the HSA account with pre-tax dollars, you can save money on taxes while putting money aside to cover those non-covered expenses.

There is more good news on the health savings account front. That is the fact that there are no restrictions on who can contribute to your HSA account. You can contribute to your own account, but your employer, your family members and even your friends can contribute on your behalf as well. After the money is in place you can spend it on over the counter medications, co-payments, deductibles, prescription drugs and anything else that is not already covered by your health insurance plan.

What you cannot do is double-dip. That means that if a particular expense has already bene reimbursed by your health insurer, you cannot use your HSA funds to pay for that expense.

Some medical items may also be restricted, so it is best to check with your pharmacist or health care provider before pulling out the debit card that comes with your HSA account. Pharmacists are always a good source of information about health savings accounts, since many pharmacists deal with these plans on a daily basis.

While an health savings account may not be able to solve all of your financial problems or lower the cost of health insurance, it can help you be prepared for the inevitable costs of staying healthy. By combining tax savings with the lower costs of a high deductible plan, you can trim the cost of the care you need.