A health savings account (HSA) is a tax deferred medical savings account available to individuals currently enrolled in a high deductible health insurance plan. There are many benefits of health savings accounts that you can take advantage of. The money contributed to the account is deposited pre-tax, and can be withdrawn tax free if used for qualified medical expenses. Withdrawals for non-medical related expenses are taxed very similar to an IRA, in that they can be withdrawn after a certain age without penalty.

Main Benefits Of Health Savings Accounts

Health Savings Accounts are becoming popular because they offer several benefits to both consumers and employers. For employers, HSAs are viewed as less expensive plans because they are linked to high deductible policies, and since employees have to share more costs, they are less likely to use medical services they do not need.

For the employee, there are significant savings that can be had by using this type of health insurance. First, if you are relatively healthy and do not typically use much medical care, these plans have low up-front costs compared to other health insurance plans. Furthermore, employers still generally cover things like physicals by depositing a set amount each year into the HSA on behalf of the employee to cover these types of care.

Second, all money in the HSA is the property of the employee regardless of whether the employee or the employer contributed the funds. Unlike an FSA (Flexible Spending Account), the money in an Health Savings Account that you do not use for medical care rolls over every year to add to more available funds that you have in the future, and the funds continue to grow in your account.

Another one of the benefits of Health Savings Accounts is that all withdrawals made for qualifying medical expenses are tax free. So, no taxes were paid to deposit the money in your Health Savings Account, and no taxes need to be paid when you withdrawal money for your medical care from the HSA.

Finally, HSAs still have out-of-pocket maximums that you can reach in medical care as well. So, if there was an expensive medical issue or procedure that you need, you would simply pay until your out-of-pocket maximum is reached. Then, you would be covered by your health insurance.

Potential Drawbacks Of Health Savings Accounts

The main drawback of the HSA plan is that it puts more responsibility for medical care on the patient. As such, the HSA plans are usually more suited towards healthy young adults who don’t need too much medical care.

Second, individuals can choose to invest their assets in their Health Savings Account in stocks or mutual funds which could ultimately lose value or swing wildly with the market at inopportune times when you may need the money the most. You could end up with less money in your HSA than when you started investing in it and less than you need to cover the cost of care. You would then have to pay out of pocket in that instance.

Do you have a Health Savings Account? What are some of the benefits that you have seen and taken advantage of?

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