Image: Health care spending © Don Farrall, Photodisc, Getty Images

If you haven't heard of health savings accounts, you probably will soon.

About 40% of midsize and large employers offer their workers an HSA or its cousin, the health reimbursement account, often paired with a high-deductible medical insurance plan, according to the latest Aon Hewitt benefits survey. An additional 43% are considering adding one of these so-called "consumer-driven health plans" in coming years.

HSAs can do more than just help you pay out-of-pocket medical costs. These tax-advantaged plans can help you dramatically increase your retirement savings and pay for post-work medical costs, as well.

That's because HSAs have an unusual triple tax break:

● Contributions are deductible.
● Accounts grow tax-deferred.
● Withdrawals for medical expenses are tax-free.

Any unused money can be rolled over and accumulated, year after year. Even if you don't use the money for medical expenses, you won't face the 20% penalty on non-medical withdrawals after you turn 65. (You will, however, pay income taxes on withdrawals that aren't used for health care costs.)

Furthermore, HSA plans typically allow contributors to invest the money in stocks and other vehicles that offer potentially high rates of return over time.

With greater returns, though, comes greater risk. HSA investors could see their accounts crash in a bad stock market, right when they may need the money to pay medical bills.

Liz Weston

Liz Weston

HSAs potentially can change the math for retirement savings, financial advisers say. Certain savers should consider contributing enough to their 401k's to get the full company match, and "anything additional should go into the HSA" rather than fully funding the 401k or a Roth, said Will Applegate, a Fidelity Investments vice president.

"A fully funded HSA is a powerful tool that provides potential tax-free growth for investors," said Tracey Baker, a certified financial planner and co-author of "Navigating Your Health Benefits for Dummies." "With the continued increase in medical and long-term care costs, having this asset during retirement that can come out tax-free for those expenses is extremely compelling."

Here's what you need to know so you can decide whether an HSA is right for you and how to deploy the funds:

HSAs are not FSAs. Most employers offer flexible spending accounts, which allow you to put aside up to $2,500 in pretax dollars to pay medical costs -- but you forfeit any money you don't use by the end of the plan year. HSAs don't have this "use it or lose it" rule, plus the contribution limits are greater: $3,250 for singles in 2013 and $6,450 for families, plus a "catch up" provision that allows an additional $1,000 contribution for plan participants age 55 and older.

HSAs also are not HRAs. These two get confused a lot. They're both paired with high-deductible (or "catastrophic") health care plans and are designed to help pay deductibles and out-of-pocket costs. Here's the big difference: You, the worker, own the money in an HSA. You can choose to invest it in a number of different options, typically including mutual funds, and you can take the balance with you when you leave your employer. Although health reimbursement accounts allow you to roll over contributions year after year, the money in the account belongs to your employer. You don't choose how it's invested and you can't take it with you when you go. HRAs paired with high-deductible plans are typically the only health insurance option offered by an employer, said Maureen Fay, senior vice president in Aon's health and benefits consulting practice. HSAs are usually (although not always) offered alongside other options, such as health maintenance organizations  and preferred provider organizations.

HSAs typically aren't a good choice for the chronically ill. If you have a lot of health care expenses, you probably want to steer clear of HSAs and the high-deductible plans that come with them. By law, HSA-compatible plans must carry an annual deductible of at least $1,250 for singles or $2,500 for families. Although that means lower premiums, those high deductibles can cost you more overall if your medical bills are substantial. PPOs or HMOs are usually a better choice if you're not relatively young and healthy.

If you do opt for an HSA, how you invest should depend on how you plan to use the account, financial planners said. Money that you plan to use within five to 10 years shouldn't be put at risk in the stock market, whatever your goal, but money you don't plan to touch for years shouldn't sit idle in a cash account.

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