Health Savings Accounts (or HSAs) are similar to personal savings accounts, but you can only use the funds in these accounts to pay for healthcare expenses. Anyone who is 18 years of age or older can open and contribute to an HSA if they:
- Have coverage under a qualified High Deductible Health Plan (HDHP);
- Have no other medical coverage (except specific injury or accident, vision care, dental or long-term care insurance plans);
- Are not enrolled in Medicare;
- Are not covered by VA benefits nor have used VA medical services within the previous three months;
- Are not enrolled in a general Health Care Flexible Spending Account (FSA) (or covered by a spouse’s FSA); or
- Are not claimed as a dependent on someone else’s tax return.
Like any healthcare option, there are advantages and disadvantages to Health Savings Accounts.
Advantages of an HSA
In general terms, those who are healthy and want to save for future healthcare expenses may see the HSA as an excellent option for them. Here are some of the critical advantages of an HSA:
- You have control over how much money to set aside for healthcare costs and how you spend your money.
- Your employer may contribute to your HSA, but you own the account, and the money is yours even if you change jobs.
- Any money you don’t use stays in your account for you to use the following year.
- You don’t pay taxes on money going into your account.
Disadvantages of an HSA:
But a Health Savings Account is not for everyone. Here are some of the key disadvantages of using an HSA:
- You may find it difficult to budget accurately for healthcare expenses since illness is unpredictable.
- It’s challenging to find the cost and quality of medical care for your budget.
- The pressure to save money in your HSA may keep you from seeking medical care when you need it.
- You will pay taxes on the money you take out of your HSA.
Making a Choice That’s Right for You
While Health Savings Accounts are not for everyone, they can be pretty helpful for those where the advantages outweigh the disadvantages. Think through the medical care and budgetary needs of you and your family before making any decision. You may also want to talk to your tax or financial advisor as well.