Save for Your Health

In their report released last week, trustees of the Social Security funds revealed that unless changes are made, the Medicare Trust Fund will no longer be able to pay all its benefits by 2019. The prognosis? If you're under 50 today, plan to pay for more of your medical care in retirement. The treatment? You may be able to boost your retirement health savings with a new prescription: health savings accounts (HSAs).

HSAs, authorized by last year's Medicare law, offer a tax-free way to save for current and future health-care needs. Unlike medical savings accounts (MSAs), which were limited to small-business owners and the self-employed, an HSA is open to anyone under 65 covered by a health-insurance policy with an annual deductible of at least $1,000 for singles ($2,000 for families). A family can save up to $5,150 a year, individuals $2,600. Those 55 or older can contribute an extra $500.

As with a traditional individual retirement account, contributions are tax free and grow tax free. HSA withdrawals are also tax free, and there are no income limitations. The tax savings are enticing, but don't forget practical, everyday money needs, says Donald Overbey, a certified financial planner with American Express Financial Advisors in Northbrook, Ill. "See how it fits your cash flow, your cash-reserve position, and then check the tax benefits," he says. Unlike flexible-spending accounts (FSAS) offered by many companies, an HSA lets you keep any unused money, accumulating more tax-free savings. It's unclear, however, whether you can hold both an HSA and an FSA. The Treasury Department is sorting that out.

Like the MSAs they replace, HSAs may be most attractive to Americans who have had difficulty getting insurance, especially those with chronic illnesses, who are more likely to have high premiums. Those premiums are lower for policies with higher deductibles, and the HSA lets you save for such costs and out-of-pocket expenses. "You don't have to fight with the insurance company or HMO to get treatment," says Brian McManus of Golden Rule, a leading HSA insurer. When you use HSA money, he adds, "you decide what doctor to go to." But long-term benefits may still accrue to only a lucky few, says Michael Kresh, a certified financial planner in Islandia, N.Y., because the extra out-of-pocket costs may be too great a burden. For help finding insurance companies offering these accounts, visit hsainsider.com .

Epperson is CNBC's personal-finance correspondent