On January 1, 2004, the Federal Government passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Besides having a huge impact on Medicare, it created a new program that can provide a terrific opportunity for those under the age of 65 to better control their health care costs.

This program is called a Health Savings Account (HSA).

An HSA allows individuals to write off out-of-pocket medical, dental, and vision expenses from the very first dollar spent. This program can also significantly lower individual health insurance premiums.

The best way to describe an HSA is to think of it as an IRA for your out-of-pocket medical expenses. Deposits placed into HSA are tax-deductible, and HSA funds used to pay for qualified medical, dental, or vision expenses come out of the account tax-free.

As for the money that remains in the account, the funds may continue to accumulate for the life of the HSA account owner. These accounts typically pay interest on deposits. Over time, should the account balance become substantial, individuals may wish to consult a financial advisor to determine the best way to invest HSA funds. At age 65, any unused balance in an HSA may be used for retirement.

To be eligible for an HSA, you must be covered under a health insurance policy that meets Internal Revenue Service requirements. For more information about qualified insurance plans, please read the next article.

Not everyone will qualify. For complete details on HSA's, you should contact a tax professional and health insurance agent who are experts with this type of program.