Life & Health Insurance Exam (National Portion)Health InsuranceEasy
A client is enrolled in a High Deductible Health Plan (HDHP) and wants to open a tax-advantaged savings account to pay for qualified medical expenses. Which type of account should they explore?
- AFlexible Spending Account (FSA)
- BMedical Savings Account (MSA)
- CHealth Savings Account (HSA)
- DHealth Reimbursement Arrangement (HRA)
Show answer & explanationAnswer & explanation
Correct answer: C. Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged savings account available to individuals enrolled in a High Deductible Health Plan (HDHP). It allows pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Why the other options are wrong
- A. FSAs are employer-sponsored and funds typically must be used within the plan year.
- B. MSAs were a precursor to HSAs and are generally no longer available for new enrollment.
- D. HRAs are employer-funded accounts and are not portable.
Health Savings Account (HSA)
A tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP).
- Requires enrollment in an HDHP.
- Contributions are tax-deductible (or pre-tax if through payroll).
- Funds grow tax-free and withdrawals for qualified medical expenses are tax-free.
Memory trick: Remember 'H' for Health and 'H' for HDHP for HSAs.