HSA’s
You may have heard about HSAs, or health savings accounts. Those in favor of HSAs tout them as the future of health insurance. Others feel that they can only help healthy and wealthy Americans. But what exactly are they? Are they right for you?
What is a health savings account?
A health savings account has two components:
- An interest-bearing savings account
- Deposits up to $2,900/year ($5,800 for families) in the savings account are tax-deductible. Funds in the account roll over from year to year. Withdrawals are tax-free as long as they are used for healthcare purposes. Once you retire, you can access the money in the account tax-free for any reason.
- A high-deductible health plan
- The annual deductible must be at least $1,100 ($2,200 for families). This means that you receive no benefits until you have paid for the first $1,100 of care.
- Once the annual deductible has been met, coverage begins. You pay the agreed copays and coinsurance, while the plan pays the rest.
- Total annual out-of-pocket costs are capped at $5,600 ($11,200 for families). This means that once you have reached $5,600 in out-of-pocket costs, the plan pays for 100% of your healthcare through the end of the year.
- People with greater healthcare needs will find it difficult to accrue the tax and savings benefits of the health savings account. HSAs work best if you leave the money in the account and don’t use it.
- It is not necessarily easier for people with health problems to buy high-deductible health plans. If they are rejected as being “too great of a risk” in the conventional market, they may also be turned down for high-deductible health plans.
- Some health savings accounts have transactional fees, administrative fees, and/or monthly service charges that can really add up over time.
- Because people are paying for more of their healthcare out-of-pocket, they may choose to forgo care, which may lead to even more expensive health problems down the road.
- Because deposits to the account are tax-deductible, and withdrawals for medical care are tax-free, these accounts are a way to keep more of your money away from Uncle Sam.
- If you do not make many withdrawals from the account, you may end up with additional funds for retirement. Once you turn 65, you can access these funds for any reason, without penalty.
- High-deductible health plans generally have lower premiums than conventional health insurance policies.
- The HSA stays with you, no matter how many times you change jobs.
What are the benefits of a health savings account?
What are some potential pitfalls of health savings accounts?
Is a health savings account right for me?
HSAs can certainly be helpful for people who do not have a lot of healthcare needs, and have enough money to pay the annual out-of-pocket maximum should something unfortunate happen.
But proceed with caution – the coverage provided by health savings accounts is not as comprehensive as conventional coverage. People who have grown accustomed to having an insurance company pay for most of their claims may be in for a rude awakening. These plans require you to be much more conscious of healthcare costs than most Americans. You must assume a more active role in making your healthcare decisions in order to get the most out of your health savings account.