An employer or an employee can contribute, but not both. Payments can be made in monthly installments or in a lump sum at the beginning of each year. Using checks drawn on those accounts, policyholders pay medical bills and submit claims to insurers. Once the deductible is met, plans often pay up to 100 percent of medical expenses. At the end of the year, any money remaining in the account is carried over to the next year.
All contributions are tax-deductible.
Interest accumulates tax-deferred up to age 65. After 65, money can be withdrawn without penalty, although tax will be due if it is not used for medical care. If the money is withdrawn early for nonmedical expenses, there is a 15 percent penalty and income taxes must be paid. An individual pays a higher deductible with the account, but in the long run, the overall insurance costs will be cheaper than a traditional health insurance plan. Money from the account can be used at any time to pay for qualified medical expenses that are not covered by the high deductible insurance policy.