The Pros and Cons of Health Savings Accounts
What is a Health Savings Account?
In a move to promote consumer driven healthcare, the federal government in 2004 enacted a law which allowed Americans to start dedicated Health Savings Accounts (HSAs). An HSA is a medical savings account which offers a slew of benefits including specific tax advantages. U.S. tax payers who are enrolled in a high deductible health plan (HDHP) stand to benefit from HAS accounts.
One of the many advantages in an HSA account is that the money contributed to it is not liable for federal income tax at the time it is deposited. HSAs differ from Health Reimbursement Arrangements (HRAs) in that they are individually owned unlike HRAs which are company-owned.
HSA funds may be used at any point of time to pay for medical expenses without being taxable federally or attracting any penalties.
Supporters of HSA are of the opinion that they are a critical reform which will help rein in escalating health care costs and enhance the efficiency of the system. They also help promote savings for health care needs of the future and enable the patient to make their own healthcare decisions without someone having to decide which benefits are allowed and which are not. An HSA empowers a consumer to assume more responsibility over his/her own health care choices through an appropriate High Deductible Health Plan.
The benefits of an HSA account
To summarize, the salient benefits and features of an HAS account are:
The flip side of an HSA account:
Is an HSA good for you? Take a hard look at the pros and cons and then decide.
In a move to promote consumer driven healthcare, the federal government in 2004 enacted a law which allowed Americans to start dedicated Health Savings Accounts (HSAs). An HSA is a medical savings account which offers a slew of benefits including specific tax advantages. U.S. tax payers who are enrolled in a high deductible health plan (HDHP) stand to benefit from HAS accounts.
One of the many advantages in an HSA account is that the money contributed to it is not liable for federal income tax at the time it is deposited. HSAs differ from Health Reimbursement Arrangements (HRAs) in that they are individually owned unlike HRAs which are company-owned.
HSA funds may be used at any point of time to pay for medical expenses without being taxable federally or attracting any penalties.
Supporters of HSA are of the opinion that they are a critical reform which will help rein in escalating health care costs and enhance the efficiency of the system. They also help promote savings for health care needs of the future and enable the patient to make their own healthcare decisions without someone having to decide which benefits are allowed and which are not. An HSA empowers a consumer to assume more responsibility over his/her own health care choices through an appropriate High Deductible Health Plan.
The benefits of an HSA account
To summarize, the salient benefits and features of an HAS account are:
- It enables a consumer to save money for health-related expenses in the future.
- After the age of 65 it works like an IRA savings account because you may withdraw money for expenses which are not health-related.
- HSA money can be used for a whole range of health related expenses from alternative medicine like acupuncture to contact lenses.
- The funds deposited in HSA are tax-deductible. The money which is drawn out is not liable to federal tax provided it is spent on permitted health-related expenses. Interest income too is not liable for federal tax.
- Money from HSA cannot be applied to health insurance premium unless you are unemployed.
- There are ceiling limits on what you can save under HSA. In 2012 an individual could save up to $3,100. This translated into a yearly saving of $775 is you were in the 25% tax bracket. In 2013 the savings limits are $3,250 for an individual and $6,450 for a family.
The flip side of an HSA account:
- Because one cannot predict illness it is difficult to budget for future health care expenses.
- Information relating to quality and cost of medical care is not easily accessible.
- It is difficult for some enrollees to budget for money for their HSA accounts. Younger people and those that are healthier are at an advantage in this respect.
- The need to save money for their HSA account might prompt some people to forsake medical care when needed.
- If you draw money from your HSA account for reasons other than medical it is taxable.
- Until the beneficiary meet the deductible HSA works out more expensive compared with other plans even after considering the tax benefits.
- HSA carries its own slew of fees which can be overwhelming.
- Not all states allow tax deductions on HSA contributions and interest earned.
Is an HSA good for you? Take a hard look at the pros and cons and then decide.
