A health savings account (HSA) is a way in which people with high-deductible health insurance plans can put untaxed-money aside to be used for future medical expenses. Those who are eligible to hold these accounts are free to manage them as they see fit – deposit any amount (up to the max allowable by the IRS), invest in stocks, bonds, and mutual funds, choose providers and treatments based on quality and cost, and rollover any unused funds each year. For some, HSA’s provide clear benefit to their particular situation. But to others, they’re not worth the risk.
What group do you belong to? Here’s what you should ask yourself before deciding whether to open an HSA:
Is a high-deductible plan right for me? Having a high-deductible plan as your sole coverage (other than dental, vision, disability, and long-term) is a prerequisite for opening an HSA account. However, in exchange for the benefits of paying a low premium, you must meet a high deductible before your coverage kicks in – usually in the hundreds or thousands of dollars. If you’ll have difficulty meeting a high-deductible – particularly if you’re anticipating requiring expensive medical care in the near future – a high-deductible plan, and therefore an HSA, are probably not right for you.
On the other hand, if the high-deductible is not a problem for you and you are in good health, a high-deductible plan with an HSA are a good way to start saving for medical expenses in the future. Particularly since HSA funds may be put towards your deductible, copays, and other non-covered medical payments.
Are you willing to research the quality and cost of care before deciding how much to invest in your HSA and receiving treatment? Information related to cost and quality can be hard to come by. Therefore, budgeting for your HSA can be difficult. Getting the most out of an HSA requires you to take an active role in your own healthcare.
Do you anticipate the need to withdraw funds from your HSA for non-medical expenses? Doing so will require you to pay taxes on those withdrawn funds, and if you’re under 65, you’ll also be charged a 10 percent penalty.
Does your employer contribute to HSA plans? Some employers do, which is clearly an incentive for opening an HSA. Through your participation in a wellness program, your employer may contribute cash to your HSA for meeting certain wellness requirements. But the total contributions from both you and your employer must still stay beneath the max allowable amount.
Will you be opening an HSA through your bank / financial institution, or your employer? The funds you contribute to a non-employer sponsored HSA are post-tax, but are later recouped when you file your income taxes. HSA’s through an employer, however, often allow you to contribute pre-tax dollars.
Do you find your HSA useful? Tell us why in the comments section below.
Sources: treasury.gov, mayoclinic.com, and gohealthinsurance.com