What are the benefits of a health savings account?
- 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 some potential pitfalls of health savings accounts?
- 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.
