The Disadvantages of HSA Accounts
- HSAs can help pay for health care, but they are not for everyone.cost of healthcare image by Cindy Haggerty from Fotolia.com
Health savings accounts, or HSAs, have become a popular way to pay for health costs and save on taxes. You can put pretax money into an account to be used for medical expenses, and the money carries over from one year to the next. While there are many benefits to HSAs, there are some disadvantages you should consider before deciding if an HSA is right for you. - One of the disadvantages of an HSA is the high deductible. HSAs are coupled with high-deductible health plans. While the money put into an HSA can go toward the deductible, that amount can be substantial, often at least $1,000 for individuals or $2,000 for families. If you have significant medical expenses before you have enough in your HSA to cover the deductible, this can be a major disadvantage. Furthermore, HSAs may be paired with high-deductible plans that have higher out-of-pocket costs than those in other health plans. This means you will spend more of your own money before the insurance company pays.
- Money in an HSA is limited to health costs. In some circumstances, money withdrawn from an HSA can incur a tax penalty. This can happen if the money is withdrawn for a nonmedical expenditure, for instance. However, the money left in an HSA until the account holder reaches 65 can be used as retirement income. In the meantime, account holders should not withdraw the money for nonmedical expenses.
- While the government has raised the annual maximum contributions allowed for HSAs, there is still a cap on how much you can put in your HSA. According to HSAcenter.com, as of 2010 the maximum contribution for an individual under 55 is $3,050; the maximum contribution for family plans for those under 55 is $6,150. Those 55 and over can contribute an extra $1,000 for individual or family plans.
