Health care and insurance costs continue to rise. To offset the ever-increasing price tag, some families are turning to a health savings account (HSA) to help them make the most of their health care dollars. With an HSA, it may be possible for you to offset some of the costs related to health insurance.

What is an HSA?

An HSA is a special savings account that allows you to save up for health care costs ahead of when you need to pay them.

Money you contribute to an HSA is tax-deductible, so you receive a benefit for your contribution. At the same time, the money grows in your account tax-free. As long as you withdraw money only for qualified health care expenses, you don’t have to pay taxes on the money or the earnings.

While many HSAs work similarly to regular savings accounts and have relatively low yields, it is possible to hold investments (including stocks and funds) in your HSA and avoid paying taxes on the earnings—as long as you use the money in the account for health care costs.

However, keep in mind that contribution limits are imposed on HSAs, and they are adjusted to keep in line with inflation each year.

Who can benefit from an HSA?

An HSA is not appropriate for all families, no matter how attractive that tax deduction—and the tax-free growth—sounds. While one preventative care visit each year is covered by your insurer, you will be responsible for paying for other office visits, along with prescription costs, lab tests, and other expenses

In addition, you are required to purchase a high-deductible plan in order to qualify for an HSA. Even though these types of plans have lower premiums, you will need to be prepared to pay more money up front until the deductible is reached. Many families using HSAs get around this by putting the savings they receive on their monthly premiums into the HSA. The HSA can then be used to pay for health care services and prescriptions.

My family benefits from our HSA because there are only three of us and our health care needs are few. We don’t get sick very often, and we only have a couple of monthly prescriptions. As a result, paying for most of our health care needs ourselves still costs less than what we were paying in insurance premiums prior to signing up for a high-deductible plan and HSA.

Other families might find that a high-deductible plan is costlier for them in the long run. If you have a chronic condition, or if you have a large family and make a number of health care visits a year, the out-of-pocket costs can really add up. By the time you hit your deductible, you could be in financial trouble.

Will an HSA work for your family?

Before you decide on an HSA, it’s important that you run the numbers. My family enjoys the tax deduction and the tax-free growth. Plus, if there is money remaining in the HSA when I reach age 59 ½, it will then act like a traditional IRA, and I will be able to withdraw money for non-medical expenses without penalty (but I’ll have to pay taxes on the amount withdrawn).

Do your research and consider your own situation to determine if you could benefit from an HSA. If you can handle the higher out-of-pocket expenses that come with a high-deductible plan, an HSA might be an option to consider.

Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind