How does a "health savings account" (HSA) function?

A health savings account (HSA) is designed specifically as a tax-advantaged account that allows individuals to save money for qualified medical expenses. Contributions to an HSA are made pre-tax, meaning they can reduce overall taxable income, and the funds can be withdrawn tax-free when used for eligible health-related costs. This feature makes HSAs particularly beneficial for individuals who have high-deductible health plans, as they can save money to cover out-of-pocket expenses.

The tax advantages associated with HSAs encourage individuals to contribute towards their health care needs, while the funds can also grow tax-free if invested. This combination of tax savings and flexibility in usage makes HSAs an effective tool for managing healthcare costs over time.