WASHINGTON -- To reflect the increases in the cost of living, the Internal Revenue Service has raised Health Savings Account limits for next year.

Touted as the next big thing since IRAs, HSAs are tax-free savings accounts that can be used to pay for medical expenses including prescription and over-the-counter drugs incurred by individuals, spouses or dependents. These accounts are accompanied by high-deductible comprehensive insurance policies that cover preventive care and larger medical bills. Unused HSA money rolls over from year to year and can then be used to pay for medical care up to the plan's deductible

In 2007, the maximum contribution that can be made to an HSA for employees with single coverage will be $2,850, up from $2,700 in 2006, while the maximum contribution for those with family coverage will be $5,650, up from $5,450.

In addition, the maximum out-of-pocket expense will rise to $5,500, up from $5,250 in 2006, and to $11,000, up from $10,500, for those with family coverage.

High-deductible health insurance plan minimums have also gone up from $1,050 to $1,100 for single coverage and from $2,100 to $2,200 for family coverage.