How do Health Savings Accounts Work?

Health Savings Accounts... the IRA of Health care!

There are two basic components that make up an HSAs.

High Deductible Health Plan (HDHP) - To qualify for an HSA, you must be covered under a qualified HDHP. Such a policy provides basic health care benefits and offers premiums that are lower than traditional insurance policies, however they also have higher out-of-pocket deductibles than traditional plans.
Savings Account - A Health Savings Account is a tax-exempt fund in which you accumulate savings to pay for future medical expenses. Contributions are tax deductible, and income earned on funds in the HSA grow tax-deferred. You can use the funds in the account for qualified medical expenses until the deductible has been met; at that point, your insurance coverage begins. You can also use the funds for dental, vision, and other services that may not be covered under the high-deductible health insurance policy. Funds in the HSA may also be invested into a number of mutual fund, allowing you to invest tax-free to save for either retirement or future medical expenses.