Got the sniffles?

Many of us do these days. Might as well go to the doctor and get it checked out. And, in many cases, for a mere $10 co-payment, why not?

Well, President Bush would prefer you consider an over-the-counter medicine first.

That's why he introduced Health Savings Accounts at the end of 2003. He was hoping that these glorified IRA accounts would do two things: Help people be more conscientious of their medical expenses and allow them to save money for health care in their old age. (Takes the pressure off having to deal with the Medicare/Medicaid issue, I guess.)

What's not to like about HSAs? Contributions are deductible, the account accumulates tax-free, and withdrawals used for medical expenses are tax-free. The president's practically giving away money.

Nevertheless, hardly anyone was using them in 2004. Prior to Jan. 1, 2005, Aetna ( AET ) had a mere 10 companies with 51 or more employees signed up, according to Robin Downey, head of product development at Aetna.

Part of the reason was timing. "These accounts were authorized in December 2003 -- too late for many companies to get their benefit packages together. Most do that in the fall or late summer," says Mark Luscombe, principal federal tax analyst with CCH Inc., a provider of tax and business law information.

The other culprit was the unfinished rulebook. "The Treasury didn't finish guidance in time," notes Downey. In other words, no one fully understood the rules.

But even with the rules ironed out, the numbers still aren't staggering. Aetna now has 70 companies with 51 or more employees signed on and Cigna ( CI ) has around 30, according to Jake Biscoglia, an assistant vice president at Cigna.

But both insurers say there is definitely more chatter among their clients about offering these products in the future, so you may start to see HSAs the next time your benefits department has open enrollment.

HSA-IRA's cousin

Health Savings Accounts are very similar to their relative, the IRA -- with one small catch. You have to participate in your company's high-deductible health insurance plan to begin to be eligible.

According to the Treasury Department, your plan must have a minimum deductible of at least $1,000 for an individual or $2,000 for family coverage. The annual out-of-pocket expenses (including deductibles and co-payments) cannot exceed $5,100 for a single person or $10,200 for a family. (Check out -- the Treasury's site -- for more details.)

And note: Your high-deductible plan won't qualify if your company offers you a separate pharmacy plan. Your prescriptions have to be a part of your deductible plan.

Assuming your high-deductible plan meets those requirements, you then can participate in an HSA and start contributing.

For 2005, the maximum contribution for a single person is the amount of your deductible or $2,650, depending on which is the lesser of the two. In other words, if your deductible is $3,000, you can contribute a maximum of $2,650; if your deductible is $2,000, then that is the maximum. For families, the operative cutoff is $5,250.

If you're 55 and older, you can put in an extra $600 catch-up contribution because once you hit 65, you can no longer contribute.

The biggest benefit of an HAS is that you can make tax-free withdrawals at any time to pay medical expenses.

If the money is withdrawn for nonmedical purposes before age 65, you'll get hit with a 10% early-withdrawal penalty and the money will be taxed as income. Once you hit 65, the money is yours to do with as you wish. So use it for medical expenses or that long-awaited trip around the world. It's your tax-free money.

And unlike a flexible spending account in which you have to use it or lose it by the end of the year, you can roll these contributions into the next year; so in theory, you can make contributions and just save the money.

Even better, you can designate the leftover account to someone at death, says Neesha Das, a tax analyst at RIA, a Thomson unit providing tax information and software to tax professionals. So you can transfer the account to a beneficiary and that person then can use the account for his medical expenses.

And there are certainly incentives for employers. To start with, it obviously costs your employer less to offer a high-deductible plan than a cafeteria-style offering of HMOs and PPOs. And your employer would like you to take more responsibility for your health care, says Downey. If you're more aware of the costs, you might be wiser about utilizing services and racking up expenses.

The upside is that some employers are taking the money they're saving by offering high-deductible plans and throwing a portion of it in your HSA as an added incentive. Once that money goes in your account, it's yours. Your employer no longer has control of it.

So Should You Consider an HSA?

The president wants people to start thinking about their health care. If the expense is coming out of your pocket, you might think twice about going to the emergency room the next time you have a cold. And be honest, do you ever take the generic drug when your insurance company will pay for the name brand?

That affects your company's bottom line. "Employers are dealing with increasing health care costs so they are turning to consumer-driven plans to try to get employees involved in their health care," says Biscoglia.

You can spend weeks analyzing what kind of car to buy, yet we decide on health care the night before all the forms are due after an all-too-brief company enrollment period. So maybe we all need to spend some more time thinking about this.

If you're a relatively healthy person with moderate to low medical expenses, then a high-deductible plan coupled with an HSA may be a good option for you. So the money you don't use because you're healthy and making wiser decisions will accumulate -- with interest -- and be there when you need it -- even if its for retirement.

Keep in mind that you can use your contributions to the HSA to pay for any out-of-pocket costs. And the money you don't use because you're healthy and making wiser decisions will just accumulate and be there for you in retirement.

On the flip side, if you have health problems or are approaching 65, a high deductible plan might not be your best option. Check out this health savings account calculator to see if a high deductible plan coupled with an HSA makes financial sense for you.

If you are interested, contact your benefits department. While there are some banks and state organizations offering HSAs to individuals, for the most part, you'll need to go through your company to get one.

And going forward, providers are likely to choose to automatically package high-deductible insurance plans with HSAs. Cigna and Aetna already sell the combination to companies now.

So it might make sense to consider it. If so, then you'll think twice about visiting your doctor every time your toe hurts.
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University.