When considering health care benefits, you may want to look at the Health Savings Account (HSA). This portable health care account rolls forward and can be offered through a Section 125 Cafeteria Plan.

HSA participants must be covered by a high-deductible health plan (HDHP). Employers of any size can set up an HSA plan, and contributions may be made through the employer's cafeteria plan.

HSAs reimburse the same expenses as a health flexible spending account (FSA), without the "use-it-or-lose-it" consequences when the plan year ends or the participant changes jobs. In addition, HSA earnings accumulate tax free.

The Tax Relief and Health Care Act of 2006 permanently enhanced tax incentives for HSAs. Employees who have a health FSA or a health reimbursement arrangement (HRA) can make a one-time, direct transfer to an HSA through December 31, 2011. Employees can also make a one-time transfer from an Individual Retirement Account (IRA) to an HSA. In addition, contributions to an HSA are no longer limited to the maximum deductible contribution amount of the high-deductible health plan based on the employee's coverage.

The 2009 HSA contribution limits are as follows:

For single coverage, a maximum of $3,000
For family coverage, a maximum of $5,950
Individuals age 55 and older can contribute an additional $1,000 on a pre-tax basis.

If funds accumulated in an HSA are used for anything other than eligible medical expenses, the account beneficiary will be required to pay taxes, plus a 10% penalty. However, there is no penalty for distributions following disability, death, or retirement (at Medicare eligibility age).

Confused between HSA, FSA, and HRA? Click here to check our Comparison Chart.