Jacob is concerned that his out-of-pocket health care expenses will be quite high, so he is considering adding contributions to a tax-free account that he can use with his high-deductible policy to cover catastrophic expenses. What kind of plan does he have?

Question

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Jacob is considering adding contributions to a tax-free account that he can use with his high-deductible policy to cover catastrophic expenses. This describes a Health Savings Account (HSA). An HSA is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). An HSA allows individuals to pay for qualified medical expenses with pre-tax dollars, reducing their taxable income. It also allows them to save money on a tax-free basis to pay for future medical expenses. HRA and FSA are other types of tax-advantaged accounts that may be offered by employers but have different rules and restrictions. Medicare and self-funded health plans are not relevant to this scenario.

Jacob Is Concerned That His Out-Of-Pocket Health Care Expenses Will