A Health Savings Account (HSA) is one way to set aside money for health care expenses. The federal government created HSAs to be used in conjunction with a qualified high deductible health plan. HSAs earn tax-deferred growth and unused funds can be invested. Though there are many advantages to having HSAs and high deductible health plans, there are disadvantages. All factors should be considered before selecting the best health plan for you and your family.
Hard to Obtain
One con of Health Savings Accounts is that it's not easy to open one. IRS rules determine whether a health plan qualifies as a high-deductible option and an HSA only can be opened if the type of coverage meets the IRS criteria for a high deductible. Also, many employers do not offer these types of plans and individual policies may be subject to strict underwriting criteria which may make them difficult for the consumer to obtain.
Potentially high out-of-pocket costs are an HSA con. Though preventive services, such as annual exams, routine visits and well-child visits may be covered by co-pays without meeting the deductible, all other services are subject to large deductibles. The money in the HSA may be used for these services but it can be quickly depleted if you need hospitalization or expensive medical procedures.
A pro of the HSA is that the money unused in one year may be rolled-over to the next or invested in stock, bonds or mutual funds. Should you choose to invest, as with a 401(k) and other retirement accounts, they are subject to market fluctuations and cannot be touched until your retirement. You may prefer to leave the unused money in your account and roll it over to the next year’s health expenses.
There are limitations on how you can use the funds in an HSA. They only can be used for medical expenses as determined by the IRS. In general, an expense for medical care has to be primarily for the prevention or alleviation of a physical or mental defect or illness.