What is the basic function of health savings accounts (HSAs)?

Health Savings Accounts (HSAs) are designed primarily to offer tax advantages for medical expenses. When individuals contribute to an HSA, they can do so with pre-tax dollars, which lowers their taxable income for the year. Moreover, the money in the account grows tax-free, and withdrawals used for qualified medical expenses are also tax-exempt. This triple tax benefit—deductible contributions, tax-free growth, and tax-free withdrawals for qualifying expenses—makes HSAs a powerful tool for managing healthcare costs.

In contrast, while investing in long-term insurance plans, lowering insurance premiums, and funding retirement savings may be parts of broader financial strategies, they do not accurately capture the primary role of HSAs. HSAs are specifically tailored to allow individuals to save funds for out-of-pocket medical expenses while enjoying significant tax incentives. This distinct focus on tax advantages is what sets HSAs apart in the realm of personal finance and health care savings.