New York Child Abuse Identification and Reporting Practice Exam

Which type of plan might an employee consider if they want to set aside money for medical expenses with tax advantages?

1. Health Savings Account (HSA)

2. Flexible Spending Account (FSA)

3. Health Insurance Plan

4. Employer-Sponsored Plan

The correct answer is: Health Savings Account (HSA)

A Health Savings Account (HSA) is specifically designed for individuals who want to save money for medical expenses while enjoying tax advantages. Contributions to an HSA are made pre-tax, which reduces taxable income for the contributor. Additionally, the funds in an HSA can be used for qualified medical expenses tax-free, making it a beneficial option for those looking to manage healthcare costs effectively. Unused funds in the account can roll over year to year, providing flexibility and long-term benefits. This contrasts with other options, such as a Flexible Spending Account (FSA), which also offers tax advantages but typically requires funds to be used within a certain period, or they may be forfeited. Health Insurance Plans generally do not focus on savings and tax advantages but rather on providing coverage for medical costs. Employer-Sponsored Plans can provide health coverage, but they do not inherently offer the same tax benefits specifically associated with HSAs.