An HSA is an account that is established to pay for medical expenses. Contributions are made to the account with pre-tax dollars. Earnings in the HSA accumulate tax free. Distributions from the account to pay for medical expenses are also tax free.
In order to create a Health Savings Account, the employee must be covered under a high deductible health plan (HDHP). An HDHP must meet certain deductible and out-of-pocket maximum expenses. These limits vary depending upon whether the individual has self-only coverage or family coverage.