account from both the employer and the employee count toward the annual maximum. year contribution limit (single) contribution limit (family) catch-up contribution (55 or older) (single and family) 2004 $2,600 $5,150 $500 2005 $2,650 $5,250 $600 2006 $2,700 $5,450 $700 2007 $2,850 $5,650 $800 2008 $2,900 $5,800 $900 2009 $3,000 $5,950 $1,000 2010 $3,050 $6,150 $1,000 2011 $3,050 $6,150 $1,000 2012 $3,100 $6,250 $1,000 2013 $3,250 $6,450 $1,000 2014 $3,300 $6,550 $1,000 2015 $3,350 $6,650 $1,000 2016 $3,350 $6,750 $1,000 2017 $3,400 $6,750 $1,000 2018 $3,450 $6,900 $1,000 2019 $3,500 $7,000 $1,000 2020 $3,550 $7,100 $1,000 2021 $3,600 $7,200 $1,000 2022 $3,650 $7,300 $1,000 2023 $3,850 $7,750 $1,000 investments funds in a health savings account can be invested in a manner similar to investments in an individual retirement account (ira). investment earnings are sheltered from taxation until the money is withdrawn and can be sheltered even then, as discussed in the section below. investments in a health savings account can be directed by the individual. while a typical health savings account custodian may offer investments such as certificates of deposit, stocks, bonds, or mutual funds, certain financial institutions provide accounts offering alternative investments which can be made inside the health savings account. internal revenue code section 408 prohibits a health savings account to invest in collectibles and life insurance policies, but health savings accounts can have investments in real estate, precious metals, public and private stock, notes, and more. while health savings accounts can be rolled over from fund to fund, a health savings account cannot be rolled into an individual retirement account or a 401(k) retirement plan, and funds from such investment vehicles cannot be rolled into health savings account, except for the one-time individual retirement account transfer mentioned earlier. unlike some employer contributions to a 401(k) retirement plan, all health savings account contributions belong to the participant immediately, regardless of the deposit source. a person contributing to a health savings account is under no obligation to contribute to an employer-sponsored health savings account, but an employer may require that payroll contributions be made only to the employer-sponsored health savings account plan. withdrawals health savings account participants do not have to obtain advance approval from their health savings account trustee or their medical insurer to withdraw funds, and their funds are not subject to income tax if they are made for qualified medical expenses. they include costs for services and items covered by the health plan but subject to cost-sharing such as a deductible and coinsurance, or co-payments as well as many other expenses not covered under medical plans, such as dental, vision and chiropractic care; durable medical equipment such as eyeglasses and hearing aids; and transportation expenses related to medical care. over-the-counter medications were also eligible until december 31, 2010, when the patient protection and affordable care act stipulated hsa funds could no longer be used to buy over-the-counter drugs without a doctor's prescription. as a response to the covid-19 pandemic, the passage of the cares act once again made over-the-counter drugs reimbursable without a prescription for amounts paid after dec. 31, 2019. the cares act also recognized menstrual care products as medical expenses, allowing for those products to be purchased or reimbursed with hsa funds. there are several ways that funds in a health savings account can be withdrawn. some health savings accounts include a debit card, some supply checks for account holder use, and some allow for a reimbursement process similar to medical insurance. most health savings accounts have more than one possible method for withdrawal, and the methods available vary. checks and debits do not have to be made payable to the provider. funds can be withdrawn for any reason, but withdrawals that are not for documented qualified medical expenses are subject to income taxes and a 20% penalty. the 20% penalty is waived for persons who have reached the age of 65 or have become disabled at the time of the withdrawal. then, only income tax is paid on the withdrawal and in effect, the account has grown tax-deferred. medical expenses continue to be tax free. prior to january 1, 2011, when new rules governing health savings accounts in the patient protection and affordable care act went into effect, the penalty for non-qualified withdrawals was 10%. account holders are required to retain documentation for their qualified medical expenses. failure to retain and provide documentation could cause the irs to rule that withdrawals were not for qualified medical expenses and subject the taxpayer to additional penalties. there is no deadline for self-reimbursements of qualified medical expenses incurred after the health savings accounts was established. health savings account participants can take advantage by paying for medical costs out of pocket and retaining receipts but allowing their accounts to grow tax-free. money can then be withdrawn years later for any reason up to the value of the receipts. when a person dies, the funds in their health savings account are transferred to the beneficiary named for the account. if the beneficiary is a surviving spouse, the transfer is tax-free. if the beneficiary is not a spouse, the account stops being a health savings account, and the fair market value of the health savings account (less any unreimbursed qualified medical expenses of the decedent paid within the 1 year anniversary of his death) becomes taxable to the beneficiary in the year in which the health savings account owner dies. compared to medical savings accounts health savings accounts are similar to medical savings account (msa) plans that were authorized by the federal government before health savings account plans. health savings accounts can be used with some high-deductible health plans. health savings accounts came into being after legislation was signed by president george w. bush on december 8, 2003. the law went into effect on january 1, 2004. health savings accounts differ in several ways from medical savings accounts. perhaps the most significant difference is that employers of all sizes can offer a health savings account and insurance plan to employees. medical savings accounts were limited to the self-employed and employers with 50 or fewer employees. benefits the premium for a high-deductible health plan is generally less than the premium for traditional health insurance. a higher deductible lowers the premium because the insurance company no longer pays for routine healthcare, and insurance underwriters believe that americans who see a relationship between medical cost and their bank accounts will consume less medical care, shop for lower-cost options, and be more vigilant against excess and fraud in the health care industry. introducing consumer-driven supply and demand and controlling inflation in health care and health insurance were among the government's goals in establishing these plans. with health savings accounts, in catastrophic situations, the maximum out-of-pocket expense legal liability can be less than that of a traditional health plan. that is because a qualified high-deductible health plan can cover 100% after the deductible, involving no coinsurance. health savings accounts also give the flexibility not available in some traditional health plans to pay on a pretax basis for qualified medical expenses not covered in standard or hsa-eligible insurance plans, which may include dental, orthodontic, vision, and other approved expenses. health savings accounts also have an advantage over flexible spending accounts since deposits are not necessarily tied to expenses in a particular plan or calendar year. they are automatically rolled over for future medical expenses or may be used to reimburse qualified expenses from prior years as long as the expense was qualified under a health savings account plan at the time that the expense was incurred. over time, if medical expenses are low and contributions are made regularly to the health savings account, the account can accumulate significant assets that can be used for health care tax-free or used for retirement on a tax-deferred basis. the high-deductible health plan, when combined with a health savings account, is the only health insurance plan option available that can possibly have a net gain of value during the year if the funds are invested in the health savings account. a recent industry survey found that in july 2007 over 80% of health savings account plans provided first-dollar coverage for preventive care. it was true of virtually all health savings account plans offered by large employers and over 95% of the plans offered by small employers. it was also true of 59% of the plans that were purchased by individuals. in terms of medicare, plan f is considered a first-dollar coverage plan, as it has no out-of-pocket expenses on covered services. all of the plans offered first-dollar preventive care benefits included annual physicals, immunizations, well-baby and well-child care, mammograms, and pap tests; 90% included prostate cancer screenings, and 80% included colon cancer screenings. they in fact encourage customers of all backgrounds to constrain costly spending and obtain more preventive health care. in indiana, those with health savings accounts are 98% satisfied. criticism some consumer organizations, such as consumers union, and many medical organizations, such as the american public health association, oppose health savings accounts because, in their opinion, they benefit only healthy, younger people, and make the health care system more expensive for everyone else. according to stanford economist victor fuchs, "the main effect of putting more of it on the consumer is to reduce the social redistributive element of insurance." critics contend that low-income people, who are more likely to be uninsured, do not earn enough to benefit from the tax breaks offered by health savings accounts. these tax breaks are too modest, when compared to the actual cost of insurance, to persuade significant numbers to buy this coverage. one industry study matched health savings account holders to the neighborhood income ("neighborhood" was defined as their census tract from the 2000 census) and found that 3% of account holders lived in "low-income" neighborhoods (median incomes below $25,000 in 1999 dollars), 46% lived in lower-middle-income neighborhoods (median incomes between $25,000 and $50,000), 34% lived in middle-income neighborhoods (median incomes between $50,000 and $75,000), 12% lived in upper-income neighborhoods (median incomes between $75,000 and $100,000) and 5% lived in higher income neighborhoods (median incomes above $100,000). in testimony before the us senate finance committee's subcommittee on health in 2006, advocacy group commonwealth fund said that all evidence to date shows that health savings accounts and high-deductible health plans worsen, rather than improve, the us health system's problems. funds in a health savings account that are not held in savings accounts insured by the federal deposit insurance corporation are subject to market risk, as is any other investment. while the potential upside from investment gains can be viewed as a benefit, the subsequent downside, as well as the possibility of capital loss, may make the health savings account a poor option for some. and information about the maintenance fees, interest rates and investment lineups of health savings accounts is not easy to find. consumer satisfaction consumer satisfaction results have been mixed. while a 2005 survey by the blue cross and blue shield association found widespread satisfaction among health savings account customers, a survey published in 2007 by employee benefits consultants towers perrin came to the opposite conclusion; it found that employees currently enrolled in such plans were significantly less satisfied with many elements of the health benefit plan compared to those enrolled in traditional health benefit plans. in 2006, a government accountability office report concluded: "hsa-eligible plan enrollees who participated in gao's focus groups generally reported positive experiences, but most would not recommend the plans to all consumers. few participants reported researching cost before obtaining health care services, although many researched the cost of prescription drugs. most participants were satisfied with their hsa-eligible plans and would recommend them to healthy consumers, but not to those who use maintenance medication, have a chronic condition, have children, or may not have the funds to meet the high deductible." according to the commonwealth fund, early experience with hsa-eligible high-deductible health plans reveals low satisfaction, high out-of-pocket costs, and cost-related access problems. a survey conducted with the employee benefit research institute found that people enrolled in hsa-eligible high-deductible health plans were much less satisfied with many aspects of their health care than adults in more comprehensive plans. people in these plans allocate substantial amounts of income to their health care, especially those who