The Disadvantages of HSA

Health Savings Accounts (HSAs) are designed to help minimize health care costs. They are savings accounts, occasionally funded by an employer, that are used in tandem with high-deductible (and hence cheap) health insurance plans. The concept is that a healthy person can contribute regularly to the account while maintaining cheap health insurance. The account can be accessed when medical expenses get high. It is meant to be an inexpensive alternative to regular health insurance.



HSAs are a government program, signed into law in 2003. This means they are tied to the IRS. In real terms, a significant disadvantage is that, for each year, the unused portion of the account is considered part of one's yearly gross income and, hence, subject to taxation.


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Regardless of the basic theory of the HSA, one must still pay a high deductible for medical expenses throughout the year. The law states the deductible must be at least $1,000 for individuals and $2,000 for families. One is paying into HSAs throughout the year, while still maintaining a medical plan and paying the deductible. In some cases, it would be difficult for the owner of the account to come out ahead. It might just be simpler to have regular, low- to mid-deductible medical insurance.



This plan seems to benefit primarily younger people. The HSA system depends on being able to regularly contribute to the account without getting sick too often. It might be possible to benefit, but only under the condition that the owner is healthy to begin with. Older or ill people would not get benefit under this plan and would likely be better off without it.



This plan does not deal with the main health care problem affecting America: the rising and out-of-control costs of health care. Indeed, an HSA could be regarded as basically a band-aid solution to the fundamental problem of costs. HSAs do not deal with rising costs, they merely make the costs more bearable for certain classes of people.



If the HSA is being run by an employer, which the 2003 law permits, the employer must contribute to the fund each year regardless of whether the employee makes any claims. Depending on the demographics of the employees, this may make no sense in that the employer is paying into a plan that remains unused.