How does an HSA work?
An HSA works in conjunction with high deductible health insurance.
Your HSA dollars can be used to help pay the health insurance deductible and qualified medical expenses, including those not covered by the health insurance, like dental and vision care.
Any funds you withdraw for non-qualified medical expenses will be taxed at your income-tax rate, plus 10% tax penalty in 2010 and 20% in 2011 if you're under 65.
Once you meet the calendar-year deductible, health insurance pays the remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.