HSA pros and cons

HSA pros and cons

Lately, my dad's been praising the benefits of having a health savings account. This year, he had the opportunity to get the most of his HSA — bad news for his health, but good news for his wallet (side note: Dad is now doing OK health-wise). If you have one or are considering one, here are all the HSA pros and cons to consider.


But first, if you are looking for the 2016 and 2017 annual contribution limits for HSAs, here you go:

  • 2016: $3,350 if you're an individual and $6,750 if you're saving for a family.
  • 2017: $3,400 if you're an individual and remains unchanged at $6,750 for families.

I've spent time researching, calculating and mulling over whether an HSA is the best option for me. After a few conversations with Dad, I decided to put together a pro and con list to help me both understand HSAs and decide if I should open one.

First, the basics:

What is an HSA?

An HSA is a highly tax-advantaged account that lets you save money for health-related expenses. It's essentially like an IRA or a savings account for your health. And, after you turn 65, it's even more similar to an IRA, because you can take out money for non-health expenses.

Who Can Get an HSA?

An HSA is always tied to a High Deductible Health Plan, or HDHP, and many will get them through work. A survey by the Kaiser Family Foundation revealed its mostly larger employers that offer HSAs: Fifty-two percent of firms with 1,000 or more workers offered this type of plan while only 25% of firms with 3 to 199 workers did. What's most important to know here is that you can't have an HSA if your health care comes from an HMO or a PPO — it has to be a high-deductible health plan. The IRS defines HDHPs this way:

“For calendar year 2016, a ‘high deductible health plan' is … a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage.”

This should not be confused with a flexible spending account or FSA which can be used in conjunction with a traditional HMO or PPO.

Related >> Readers share their experiences with HSAs

Pros of Opening an HSA

Flexibility of Uses

You can use money from your HSA to pay for a slew of health expenses, from contact lenses to acupuncture, mental healthcare or a midwife. You might be surprised at some of the things you can buy with your HSA money. HSA Center has a complete list of eligible purchases.

Tax Incentives

The money you put in the HSA is tax-deductible. Also, the money you withdraw isn't federally taxed, as long as you spend it on approved, health-related stuff. The HSA's interest income isn't federally taxed, either.

No ‘Use-It-or-Lose-It”

Unlike a Flexible Spending Arrangement or FSA, dollars in your HSA can rollover year to year.

You can Earn Interest

I think the amount of interest I earned recently was something like six bucks. So my initial reaction is whoop de do, but my frugal side reminds me that every little bit helps.

Responsible Planning

The most obvious benefit of the HSA is that you're funding the future. You're being responsible. The HSA is an emergency fund for your health.

You Can Take It With You

With an HSA, you can take your balance with you if you leave a company. And if you really hit tough times, you can even withdraw the HSA money to pay for non-health expenses. Of course, you'll be taxed on that — plus, you'll pay a penalty.

Related >> Health insurance options for the self employed

Retirement Advantage

After age 65, you can use your HSA savings as retirement money. You're free to spend it, penalty free, on non-health expenses.

Free Preventive Procedures

Wellness procedures — breast exams, cancer screenings — are usually not subject to the HSA-compatible plan's deductible. Those office visits are covered before the deductible, and often, they're free. Of course, many traditional insurance plans have that same benefit.

Cons of Opening an HSA

Restrictions

There are limits to how much you can save. For 2016, you can only sock away $3,350 if you're an individual and $6,750 if you're saving for a family. In 2017, the contribution limit rise to $3,400 if you're an individual and remains unchanged at $6,750 for families. Also, you can't use money from your HSA to pay for your health insurance premium — unless you're unemployed.

Cost of Office Visits and Prescriptions

I compared my traditional Blue Shield plan with their HSA-compatible plan, an HDHP. With the HSA, I'd be responsible for paying the full amount of doctors' visits and prescriptions — until I met the deductible. But the deductible is $6,000 — I'm probably not going to reach that. If I have a couple of non-preventive office visits and prescription expenses a year, the HSA plan would end up costing me several hundred bucks.

Compared to my traditional plan, which requires that I pay $35/visit and $10/prescription (before the deductible), I could actually be spending more for the HSA plan — even considering the tax savings. I suppose it depends on what health issues arise and how much I'm willing to contribute.

Fees

Unsurprisingly, like any other bank account, an HSA comes with its share of fees. They vary, but from my research, most seem to have a start-up fee, transaction fee, debit fee, and in some cases, a monthly maintenance fee. Some may even have a minimum account balance fee.

State Tax

Even though the federal government allows deductions of HSA contributions, a few states don't follow suit. Please check on your state's policy before making any decisions on the tax merits of an HSA. Here's one list of HSA policies by state to consider.

Not Meeting the Deductible

In all, the health expenses you may have to pay with an HSA plan could outweigh the tax savings. For example, one reader mentioned that the amount he pays in his prescriptions for the year makes the HSA not worth it. If the deductible isn't being met, I can understand that. This seems to be one of those “it depends on the situation” scenarios.

But of course, it's not just about tax incentives — the point of the HSA is also to save for the future. In the end, that seems to be what it comes down to, whether you're using an emergency fund or an account with tax incentives. In my dad's simple but shrewd words: “The bottom line is: save, save, save — as much as possible. Trust me, you will need it .”

If you've passed on an HSA, why wasn't it worth it to you?

What are some other HSA pros and cons?

More about...Planning, Health & Fitness, Insurance

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
108 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Marsha
Marsha
7 years ago

There are many variables involved, so you need to figure out several possible scenarios and weigh whether an HSA is likely to be beneficial. We’ve had an HSA for the last two years, but we’re going back to a PPO for 2013. When we started the HSA in 2011, the HSA was so much better than the PPO, it was the obvious choice. Even if we had reached the max out-of-pocket costs, we still would have been slightly ahead. But the plans are changing for 2013, making the PPO a better choice for us. We’re a family of four, with… Read more »

Ram joshi
Ram joshi
6 years ago
Reply to  Marsha

Record Keeping:
I would say, since HSA company provide credit card/ Debit card and if all medical related expenses are paid through these card, It would be easy to track all your expesnes as well as would be easy even if there is a audit or query from IRS.

Bryan Kelly
Bryan Kelly
5 years ago
Reply to  Ram joshi

Unfortunately, even if a purchase is paid for with the debit card, it does not guarantee that is a qualifying charge. Therefore, you still need to be aware of what you are purchasing and keep receipts in case you are asked to provide verification.

p.s. This applies to both HSA and FSA spending, but especially to HSA since things like non-prescription drugs do not qualify for HSA

Mike
Mike
7 years ago

I’m disappointed the author made the mistake of saying that tax brackets cause all your income to be taxed at the higher rate. Brackets only apply to income over the cutoff, and keeping your income below the bracket only means you didn’t pay a higher rate on the income over it. If the author actually tried thus she should have realized it didn’t in fact work.

Figs
Figs
7 years ago
Reply to  Mike

This is what I was just about to come in here to say. I would think that something this basic would be well known to a writer for a financial site.

monsterzero
monsterzero
7 years ago
Reply to  Figs

Ditto.

Julie
Julie
7 years ago
Reply to  monsterzero

Me too. This portion of the article should be deleted. I am suprised something of this quality has been posted.

Jen
Jen
7 years ago
Reply to  Mike

Me too — that line is what made me pop into comments.

It would save you those extra percentage points of tax on…the amount you put in. Which it would anyway.

This drives me crazy on news reports too. EVERYONE would be maintaining the tax cut rates on the first $250K in income.

Changing the highest rates back, doesn’t affect the amounts earned below that amount.

Matt W
Matt W
7 years ago
Reply to  Jen

I agree with the two commenters who were jarred by seeing the incorrect understanding about how marginal tax rates work. Might be time for a refresher on this blog. It was covered back in 2009 at GRS: https://www.getrichslowly.org/how-marginal-tax-rates-work/

Ross Williams
Ross Williams
7 years ago
Reply to  Jen

You can’t blame people for getting it wrong when the entire media consistently misrepresents something.

Ramblin' Ma'am
Ramblin' Ma'am
7 years ago
Reply to  Ross Williams

I was surprised to learn recently that my sixty-year-old mother, an educated, middle-class person, didn’t know how marginal rates worked. But then, she’s an English teacher, not a finance writer. If Kristin wasn’t clear on this, or if she just phrased it badly, an editor should have caught it.

sarah
sarah
7 years ago
Reply to  Mike

I was about to say the same thing :/

Peter
Peter
7 years ago
Reply to  Mike

“I’m disappointed the author made the mistake of saying that tax brackets cause all your income to be taxed at the higher rate.” She did not say that explicitly. I suppose it could be implied. At most you could save 25% (or whatever bracket you fall in) of 3250 (or 6450). Which is a substantial amount of money. “The big tax savings come in when contributing to the HSA puts you in a lower tax bracket. If you’re on the lower cusp of your current tax bracket, contributing a few hundred bucks to your HSA could mean a big tax… Read more »

Steve
Steve
7 years ago
Reply to  Peter

It’s more than just implied. The author has a paragraph discussing the ethics of tricking the tax system in that way.

Kristin
Kristin
7 years ago
Reply to  Mike

Thanks for pointing this out, and apologies for the error. I’ve brought it to the editor’s attention (along with the bit about at what age you can make catch-up contributions), and Ellen is going to update the story. Thanks for speaking up about it. I have a lot of respect for the GRS community, so I can’t help but feel I’ve done you guys a disservice. I know frugality, but when it comes to topics like this, I’m still learning. I wrote about that in an article a while back–so I thought I’d share my learning process with the readers.… Read more »

Steve
Steve
7 years ago
Reply to  Kristin

I don’t blame you for the errors in the article. You put yourself out there and shared what you had learned, correct or otherwise. I blame the site editors that let this article through with errors that they, as the experts, should have caught.

Matt
Matt
5 years ago
Reply to  Mike

Actually, the author’s tax savings are computed correctly. If anything, the savings are a little understated for filers in the many states which have a separate income tax, which typically adds another 3-10% savings. Any deduction from your income is taken from the “top” …. so the funds socked away into an HSA are taken from the top tax bracket of your earned income. This isn’t to be confused with your “effective tax rate,” which is typically around 10-15% for more middle class earners. So enjoy those deductions, you’re preventing that amount from being taxed at a 25% rate if… Read more »

Paul
Paul
7 years ago

I am a business owner (LLC) who insures for health with CareFirst BC/BS. I have a family plan with a $5k deductible. 1. Families tend to be more predictable in health spending than individuals. It just makes sense that if you have four people your spending will have less variance than with one person. 2. The lower premiums save me about $500 per month (pre-tax). Yes, this is very close to deductible spending I will need to do out of pocket, but three years of every four I have ended up ahead. 3. Last year my wife needed surgery so… Read more »

Eileen
Eileen
7 years ago
Reply to  Paul

Paul – I agree on #5!

My son recently needed to see an ortho Dr and get an xray. When we got the bill (because it will go towards our deductible) and seeing the “negotiated rate” just is such an eye opener. Not only do I have an insurance and HSA plan available to cover the cost, but the idea that someone paying out of pocket with no health plan would have to pay practically double? It’s really sad.

Evangeline
Evangeline
7 years ago
Reply to  Eileen

That last sentence really strikes a chord with me. I had to have a medical procedure on my leg that required several visits. My portion of the $780 procedure (after insurance) was $250. Not too bad, I thought, until I changed insurance companies and the new policy would not cover the final treatment. Since I was uninsured, the bill was $117. I’m not naive, but when is it ever to fair to treat two sides of the situation so unevenly? The prices seem so arbitrary.

Maria
Maria
7 years ago
Reply to  Eileen

When we finally got health insurance after 10 years, I didn’t realize how the rules had changed. My favorite doctor is “out of plan” and I thought I would just have a higher copay. Instead, the insurance spent 6 months assuring me I just had to get past the waiting period, then refused every charge I had for the entire year–everything was considered a pre-existing condition (even a bad mammogram and the followup biopsy). That’s when I learned that my doctor would give me a 40% discount, but only if I had no insurance. I had $10,000 in medical bills… Read more »

Justin@TheFrugalPath
7 years ago

For anyone who finds themselves in the Dr. a lot or buying over the counter medicines these plans are great.
My wife and I don’t have children yet and her work pays the first couple thousand of our deductible, so for us it isn’t worth it. But once we have kids, who knows.

Holly@ClubThrifty
7 years ago

I think that it makes a big difference if your employer contributes to your HSA in some way. My employer does not contribute to mine and it makes my $5000 deductible very hard to accept.

Darrin
Darrin
7 years ago

The employer contribution is a huge variable in the HSA argument. I am incredibly fortunate. My employer contributes the annual deductible amount to my HSA ($1250 for individual and $2500 for families; 2013 plan). I am required to contribute a minimum of $300 per year, though I elect to contribute $2,000 to maximize the tax benefit. If you are not receiving a contribution from your employer, you should begin a discussion with your HR staff. They are obviously saving money on you since you selected the HDHP plan over a lower deductible plan. The employer’s contribution to my HSA along… Read more »

Greg
Greg
7 years ago

Thank you Mike for bringing up the tax bracket mistake. I was really confused by that part of the article.

Barbara
Barbara
7 years ago

Two corrections – first, HSA’s USED TO be able to be used for bandaids, over the counter medicines, and the like, but that is no longer the case. You can still use them to buy over the counter drugs, but only if you have a doctor’s prescription for them. Second, the amount you can contribute increases when you are 56, not 65. Once you are over 55, you can contribute an additional $1,000 per year, above and beyond the $3,250 individual amount or $6,450 family amount (2013 limits.) But, this is guided by the age of the person who is… Read more »

Andrew
Andrew
7 years ago

“Band-aids? Covered. Condoms? Yep. You can even pay for rubbing alcohol with your HSA.”

Under Obamacare, OTC expenses now require a doctor’s prescription to be HSA eligible.

Figs
Figs
7 years ago
Reply to  Andrew

Source?

Babs
Babs
7 years ago
Reply to  Andrew

I believe that the point was to make the same things deductible under all circumstances. That is if it is eligible to itemize on a 1040 it qualifies under FSA and HSA plans.

Tom
Tom
7 years ago
Reply to  Andrew

That is true of over the counter medications and drugs (except insulin, no rx required)

However Band-aids, condoms, and medical supplies (ACE bandages, gauze, ice packs) do not require prescriptions.

Eileen
Eileen
7 years ago

No mention of the difference in the cost of Premiums when comparing (any) plans? That’s clearly a consideration when making the decision on plans, isn’t it? In my situation (work for very large company), when they came out with a High Deductible Plan + HSA offering, the difference in the monthly premium made the HDHP choice very easy. What I was saving in monthly premiums could go into my HSA to fund my deductible requirements(my employer also makes a 1 time contribution each year). My monthly expense was not any greater and my HSA money belongs to me. I guess… Read more »

Joanna Lahey
Joanna Lahey
7 years ago
Reply to  Eileen

You may want to check out the earlier article on HDHP with HSA if you missed it (it came out on a Saturday). It looks at the package and also makes some comparisons to other savings vehicles. (And it doesn’t just focus on risk of not affording the deductible, although that is obviously important.) The comments were also super interesting and brought up some issues I hadn’t considered.

https://www.getrichslowly.org/hdhp-with-hsa-friend-or-foe/

TB at BlueCollarWorkman
TB at BlueCollarWorkman
7 years ago

The “cons” list is big enough to make me think that there’s no way I’m opening an HSA. Especially since myself and my family and quite healthy. No obesity or any other problems that seem to plague this country. I know unexpected things happen, but there’s a limit to how much you can protect yourself reasonably. Those cons are pretty bad and outweight the pros. At least for my and my’s family situation.

Eileen
Eileen
7 years ago

Please don’t use this article as a sole resource for determining if a High Deductible Plan + HSA is good for you.

There is no mention of the cost savings in Premiums for selecting a HSA-compatible plan.

As I mentioned in my post above, the premium savings for the High Deductible plan is enough to fund my HSA to the meet the deductible.

No health insurance plans are the same, so one needs to do the research to determine what is best for their own situation.

I’ve had the HDHP+HSA for 3 years and think it’s fantastic.

Tuco
Tuco
7 years ago

The article is going through a quick overview and not helpful in the sense how helping people decide if it is right for them. I currently have an HSA through my company a few years ago since the premiums were half the cost to the PPO. If you are healthy, then it is better since once you have enough money in your account to cover the deducible then you are good. You can put as little or as much money as you want. I wish I had a HSA earlier for all those years that I was healthy and not… Read more »

Peter
Peter
7 years ago

You say you and you’re family are quite heathly…..that’s really what/who the HDHP and HSA accounts are for. You save money on the premiums and you can put tax exempt money into a savings account to use for medical expenses (they can be used towards your deductible). The savings build up year over, they are not use it or lose it like an FSA. You still need to look at your costs versus waht is covered in the two different plans, but you may find you save quite a bit of money switching to an HSA. For me personally the… Read more »

Courtney
Courtney
7 years ago

It really is about the options you have available. At the company I work for, the changes they made for 2013 make the HDHP a no-brainer for almost everyone. The maximum out of pocket is the same for both plans, but for HDHP you’re paying drastically lower premiums.

Also, your healthy years are the best time to start an HSA. The money accumulates and before you know it, you’ll have the deductible or even your maximum out of pocket amount saved up and ready to go – worry free insurance!

Chris M
Chris M
7 years ago

I agree with Eileen on this one. A big part of what makes an HSA worth it for me is the difference in premium and the employer contribution. When I switched to an HSA, I simply took the difference in premiums from my old HMO and the new HSA and used that money as my own contribution– so the overall cost to me remained flat. The difference is that after a fairly normal health year, I now how $1800 stocked up in my HSA. That’s $1800 I wouldn’t have seen had I stuck with the HMO. My hope is that… Read more »

Figs
Figs
7 years ago
Reply to  Chris M

Well, your out of pocket risk goes to zero for one year, right? But what if, the year your HSA account has grown enough to cover your deductible, you take a nasty spill at a New Year’s Eve Party and require care spanning December 31 and January 1? Then you could potentially eat up your entire HSA on the deductible for one year and owe a whole new deductible the next year, even though it’s really just two days.

Eileen
Eileen
7 years ago
Reply to  Figs

That’s correct, but the point I think Chris is making is that it’s not really any different than paying for HMO/PPO plan where you are paying a higher premium whether or not you use the coverage. If you are paying $XXX per month toward healthcare, a HDHP+HSA allows for the opportunity to save part of that $XXX in an account you own. In a HMO/PPO plan, that money is going towards a Premium no matter what and can’t be “saved”, even if you don’t have $1 of health care expenses over the year. Also, Chris doesn’t say that he would… Read more »

Figs
Figs
7 years ago
Reply to  Eileen

Sure, I understand and agree. But I think with the deductible kicking back in each year, the meaning of “savings” can be a little different. Like you’ve cautioned before, it’s got to be a process where you delve into the math of employer contributions, co-pays, co-insurance, deductibles, likelihood of injury or chronic conditions, etc.

Eileen
Eileen
7 years ago
Reply to  Eileen

Absolutely true. You have to consider what is available to you, what the premiums are, what the coverage is. Personally, we don’t (thankfully) have any chronic issues. But I don’t consider “likelihood” of an issue beyond that because I simply can’t control the universe. Being able to shift our funds from premium payments to HSA savings and not be out of pocket any more than before, made the decision easy. The chance that we’ll be rolling over a balance each year (and we have, even after reaching our deductible this year) is much more attractive for us. I guess the… Read more »

Chris M
Chris M
7 years ago
Reply to  Figs

Yes, Figs, that is true. I guess I need to save up to twice the deductible then. 😉

Still, I’d rather take the risk of a nasty spill on New Years Eve than take the risk of giving up almost $2000 a year in premium costs I don’t need.

If someone is in a financial situation where the deductible can cause them to declare bankruptcy or lose the house, then the risk of an HSA is probably too high. I’m not in that situation, so I’m willing to take the risk.

Figs
Figs
7 years ago
Reply to  Chris M

Sure, and I’ve no doubt that you’ve done the math and this plan works out for you. With my own personal financial situation, I’d be more comfortable staying on a low cost traditional plan for a couple of years that’s mostly paid for by my workplace, saving up some money, and then kicking over to an HDHP plan if it makes sense for me then (though by that time there may be kids, which is a whole ‘nother consideration, I suppose). That is, I’m throwing another layer onto this: I’m young, relatively healthy (and expect to stay so), but I… Read more »

Eileen
Eileen
7 years ago
Reply to  Chris M

See – I think that’s the difference in what’s available to you. From my employer, the “low cost” plan is actually the HDHP+HSA option. If I chose a “traditional plan” (which if you are as old as me, is really kind of an odd use of “traditional” 🙂 — my original health plan coverage was a plan that had a deductible and 80/20 coverage after that with no FSA or HSA to help!) I would be paying around $300 more per month. Instead, I send that to my HSA.

Eileen
Eileen
7 years ago
Reply to  Chris M

Exactly!

We’ve actually had some expenses (wisdom teeth extractions, back issues, but thankfully nothing serious) that used up a lot of our deductible (and thus the HSA fund) the last 2 years, but I’m still sold on this set up…for us anyway.

Bill in NC
Bill in NC
7 years ago

Isn’t there still a real concern that these type of plans won’t qualify as creditable coverage under ACA?

Will they still be around after 2013?

Peggy
Peggy
7 years ago
Reply to  Bill in NC

The ACA allows high-deductible plans, but limits how high the deductibles can be, and how much you can put into the HSA per year. So very-high-deductible plans will go away, but HDHP/HSA more or less as described in the post will still be around.

Kelli
Kelli
7 years ago

Without a doubt the HDHP and HSA are worth it for a family. We are fairly normal, I have 20 month old twins who go for regular checkups and maybe a visit once every 2 months because of ears or cold or something, my husband and I are healthy, I am pregnant again and take some regular medications. We have a 30 dollar a month premium a 5000 deductible, 8000 max. Just got a statement last week and we have spent 4300 in medical this year out of pocket tax free out of our HSA. With premiums our total for… Read more »

Eileen
Eileen
7 years ago
Reply to  Kelli

Great details Kelli!

I had not thought of the credit card approach. I have a HSA debit/visa thing and use that and I’m done. But looking back on this year with $4000 of HSA covered expenses, that would have been a good use of CC rebates!

Dani
Dani
7 years ago

I have had an HSA for 3 years too – it has a $1200 deductible, which my employer contributes the full amount to my HSA (distributed quarterly). I have hit my deductible every year, but maybe that’s because it’s relatively low for a HDHP. I have added additional funds to my HSA account too, starting in the same amount I would have paid for a PPO and slowly increasing it over the years. I am about to hit my deductible for this year already (started Aug 1) and still have $1400-ish in my HSA. So it has definitely been beneficial… Read more »

Samantha
Samantha
7 years ago

We passed on our HSAs through our respective jobs for a few reasons: monthly maintenance fees and being young and healthy were the main ones.

KSR
KSR
7 years ago

Back in the day, when HSAs were less known, the conversation in regard to their tax implications, deficit creation, and fear of it causing increases in the uninsured (by employers opting to stop providing coverage) was remarkably similar to the argument we hear on Obamacare–just not in scale or scope. I dug up this article http://www.cbpp.org/cms/index.cfm?fa=view&id=1872 from way back– when it was still speculative. But, it’s still relevant to those on the fence weighing their options or just want good historical perspective. It’s all in the math of what works for you, but there is no doubt that these plans… Read more »

Carol
Carol
7 years ago

In NJ, I believe that only certain high deductible plans qualify one for an HSA. When I reviewed those plans, they were rediculously expensive for the high deductibles they had. And then there were limited choices as to which institutions could hold the money, and their interest rates were even worse than average. It looked like a bum deal here.

Ruth
Ruth
7 years ago

have a few questions for the author, what happens to an inherited HSA?
Is it taxed to the heir? Does the heir have to liquidate it or can they roll it into their HSA?

Peter
Peter
7 years ago
Reply to  Ruth

“If you are married and your spouse is a named beneficiary, s/he becomes the owner of the account and assumes it as his/her own HSA. If you are unmarried, your account will cease to be an HSA. It will pass to beneficiaries or become a part of your estate, and be subject to applicable taxes.”

From USBank
http://www.mycdh.usbank.com/faq.html

Lane
Lane
7 years ago

We are in our late 50’s and just changed to HDHP with an HSA. You can contribute to the HSA with your own money if you have not had the full amount deducted from your pay. So we will send a check to max out the account for the year; it will grow taxfree ,and ours can be invested in a variety of ways. If you have the money and are a few years from medicare this can be part of planning if you plan to retire before 65. As we will.

Honey Smith
Honey Smith
7 years ago

So, Kristin, did you go for it, or not?

Kristin
Kristin
7 years ago
Reply to  Honey Smith

Hi Honey!

I didn’t. Not yet, at least. My current plan is so good, and the premium isn’t much more than the HSA premium ($5 difference). I did the math, and with the amount I’d have to pay for prescriptions, I would actually just break even with the amount I’m willing to save in the HSA. When I’m in a position to save more, I’ll definitely open one.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago

“The bottom line is: save, save, save – as much as possible. Trust me, you will need it.”

Will you please send your dad to Washington to explain this novel concept?

Julia
Julia
7 years ago

Most preventive healthcare is covered with HDHP. This is from the new ObamaCare laws. Routine physical, annual pap, birth control is all covered and not part of the deductible.

These exams are generally the only time I go to the doctor. HSA Plan makes perfect sense to me. I actually ended up going for a sickness, but paid the bill out of my regular budget. I am keeping my health savings account for a big medical emergency.

Dom
Dom
7 years ago

I’ve had an HSA since 2010. My employer offers two varieties – one with a $1250 deductible and $2500 out of pocket max, 10% coinsurance after the deductible until you reach the max – and one with a $2500 deductible, $3000 out of pocket max and 20% coinsurance. My employer also contributes money to our HSA accounts ($750 for $1250 plan and $1000 for the $2500) effectively lowering our deductibles. The great part is that since preventative care is 100%, if you never go to the doc or get sick or need care – you only have to pay the… Read more »

John S @ Frugal Rules
John S @ Frugal Rules
7 years ago

We love HSA’s! I had one through my former employer and the best thing is that it’s not a use it or lose it like FSA’s are. Now that I am self-employed we’re in the process of getting ready to start one ourselves. The tax savings are nice and it can be used year to year.

SLCCOM
SLCCOM
7 years ago

As I understand it, you can now under Obamacare, only contribute $2500 a year now to the HSA. That will really impact what you can save for the future.

Tricia Stock
Tricia Stock
7 years ago
Reply to  SLCCOM

Not True – the $2500 restriction in Obamacare is only for FSA’s (flex spending arrangements) – NOT HSA’s

Bryan
Bryan
7 years ago

Maybe I’m the only excel geek here, but I took both the traditional plan and HDHP plan offered at work, input all the info (premiums, deductibles, co-insurance, max out of pocket) into excel with formulas so each element kicked in at the right point. When I was all done I had a nice graph that told me if I spend less then $1300 (single plan, more like $3400 for family) on medical expenses for the year, the HDHP was better. More than that, the Traditional would be cheaper. I realize now I forgot to include the HSA tax savings in… Read more »

Juli
Juli
7 years ago

My company changed our insurance options and their contributions for next year, so I decided to go ahead and try to hdhp option. If we do certain activities (get a health screening, do an online health survey, that sort of thing) they will put money in the account. The kids and I are pretty healthy, but my husband, who is on my plan, has some health issues. I’m hoping that with the lower premium and the employer contributions that we will come out ahead. We will see! I definitely like the idea of being able to put money aside tax-free,… Read more »

Susannah
Susannah
7 years ago

Something to note for military families: TRICARE and HSA are incompatible. I learned about this a few months ago when I took a new job (civilian) which offered a HSA/HDHP plan, while my family was already covered by TRICARE through my husband. The following is from http://www.tricare.mil/faqs/question.aspx?ID=1794&page=0&search=group&click=ibGo.X An individual who is covered by an HDHP and who also receives health benefits under TRICARE (the health care program for active duty and retired members of the uniformed services, their families, and their survivors) is not eligible to contribute to an HSA. This is because coverage options under TRICARE do not meet… Read more »

Danielle
Danielle
7 years ago

A few additions/clarifications. You can select the HSA deductible and Blue Cross has them available from $1200 on up. There’s no point in selecting a deductible higher than the amount you can put into the HSA, unless it saves you more than that amount in premiums. Second, once you do meet the deductible, remaining care is usually covered 100%, whereas PPOs often have an 80/20 split for several thousand more dollars of bills AFTER you meet the deductible. Third, if you really are going to park the money, don’t choose an HSA account that just puts the money into a… Read more »

Amber D
Amber D
7 years ago

I am very fortunate to have excellent insurance coverage through my employer. We can also opt for an HSA, which I did last year, and despite the savings, I chose not to do so this year because the paperwork was a nightmare. The savings did not make up for having to track our medical expenses twice. We had to wait for the EOB (30+ days from date of visit), copy it and send it to the HSA provider, and then follow up with the HSA provider 30 days after that. The amounts paid/not paid were sometimes baffling and there were… Read more »

MIss LJ
MIss LJ
7 years ago

Whoa, I stopped reading after you incorrectly stated that you can buy over the counter items like band-aids and condoms. Nope, not anymore. PPACA eliminated that in 2011. If you use your HSA to purchase over the counter items you will pay a 20% tax penalty. In addition, be careful with accupuncture and massage therapy. Unless it’s prescribed by your physician it might not be covered.

Nico
Nico
7 years ago

Allthough a HSA is an excellent product according to me, the fact that the contributions and tax savings are regulated by government and can change at any time, makes me put q little extra away every month in a seperate savings account.

You just never know.

Amanda
Amanda
7 years ago

I’m confused on a couple of points regarding the HSA.

You must reach the $6000 deductible before you can withdraw from the HSA funds? So you can’t use the HSA funds to pay your deductible?

How do the premiums compare to a traditional plan? It seems that should be part of the cost factor somewhere.

PointSpecial
PointSpecial
7 years ago
Reply to  Amanda

Hi Amanda, HSA funds CAN be used to pay for the deductible. This is truly one of the advantages of an HSA, if you have the funds to set aside. Most HSA plans are going to cost less (and in some cases significantly less) than a traditional PPO or HMO/EPO plan. For example, my family has an HDHP with an HSA that we pay no money out of pocket for in premiums (the subsidy my employer pays covers the full amount of the cost, even for family coverage). For me to get family PPO coverage, I would have had to… Read more »

derringer
derringer
7 years ago

Don’t forget that HSA contributions, when done as a payroll deduction, are exempt from both FICA and Medicare payroll taxes. This is kind of a big deal. Whenever I see discussions on HSAs, I wonder why this isn’t near the top of the pros list, let alone forgotten about. It does depend on your individual HDHP plan that accompanies it, but HSAs are an even more flexible, less taxed retirement vehicle than either a 401k or a Roth IRA.. just put away the max via payroll deduction, keep your receipts for immediate future reimbursement if needed, and let it grow,… Read more »

Doug
Doug
7 years ago

The best way to look at this is: a. what you save in premiums + b. what your employer contributes less c. your new deductible. Then you still have to factor in the tax savings, and the idea that you should contribute the max which should get you above most HSA deductibles (for at least one family member). The BEST way to use an HSA is as a retirement account, if possible. Make maximum contributions to the HSA, pay your healthcare expenses out of pocket, and let the HSA grow tax free. When you retire, and are over 65, you… Read more »

Claire
Claire
7 years ago

I agree with some of the other commentors:
1). There is an ENORMOUS savings in premiums when you use HSA plans (which is most notable when looking at plans for more than 1 person).
2) You cannot purchase OTC items with these plans anymore.

More reasons why I’m visiting this blog less & less. It’s becoming a crappy version of Wise Bread.

Anthony Perry
Anthony Perry
7 years ago

I had a business with myself and one employee to be insured. When I turned Medicare age we no longer qualified as an insurance group so I set up my employee (and her husband) with an HSA. I like the concept but there were 2 problems. Even high deductable insurance purchased on the individual market is very costly and sometimes unobtainable if there is a medical history (which her husband had). She consistantly failed to make her contributions to the HSA as there were always other personal expenses which in her mind were higher priority. So when medical expenses did… Read more »

Carrie
Carrie
7 years ago

What’s New

The author also needs to check the facts regarding what medicines are covered. from the irs website: “Qualified medical expenses. For HSA, MSA, FSA, and HRA purposes, a medicine or drug will be a qualified medical expense only if the medicine or drug:

Requires a prescription,

Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or

Is insulin.”
This eliminates over the counter meds (without prescription) .

Michelle
Michelle
7 years ago

I had a HDHP 2 years ago, and had a HMO last year and will continue to do so this year.
So if I need the money out if my HSA… how high would the tax and penalties be? I am not contributing to the account any more and not sure I want to keep it. It seems like it is a waste and another bank account to track now.

Kris
Kris
7 years ago

My family is choosing a HSA/HDHP for 2013. I have my own business and an individual family BCBS plan was $525/mth. Our HDHP is $260 for 4 people. I’m saving $3,180/year in premiums immediately. Our problem with our “Total Blue” plan through BCBS is there were SO many items that simply were not covered by our plan and with the high monthly premium we were continuously met with, “you need this but it’s not covered and will be an additional $150.” This scenario was especially true with prescriptions that were not generic. I now have a $6,500 family deductible but… Read more »

Valerie Hall
Valerie Hall
7 years ago

We once signed up for a high deductible plan, but there was NO option for an HSA – that was on our own, When I tried to sign up, no one would talk with me; few banks were interested. We just signed up again, and $3000 is going into account, all done through employer sponsored bank. As of now, $0 has funded and if we are lucky, it “might” be funded next week with a whole $116 to start us off. Thank goodness no one is sick. We DO have to pick up $75 in Orthotics , but can’t do… Read more »

Tricia Stock
Tricia Stock
7 years ago
Reply to  Valerie Hall

you can pay the bill in full and “reimburse” yourself at anytime in the future when your account is funded.

Jayme
Jayme
7 years ago

I think you should check the statement regarding how HSAs can be used after age 65. It’s my understanding that the distributions still need to be for qualified medical expenses. AT 65, once you’ve enrolled in Medicare, you can no longer make contributions. You can, however, use your HSA balance to pay for your Medicare premiums.

Tricia Stock
Tricia Stock
7 years ago
Reply to  Jayme

The article is correct, you can withdraw money for anything after the age of 65. At that point the account basically morphs into a 401k.

Tricia Stock
Tricia Stock
7 years ago

There is one very LARGE pro that you missed – if you have your HSA contributions done through payroll with your employer under a section 125 plan, the contributions are pre FICA and Medicare tax (7.65% of your gross income)- if you leave the money in your account till you are 65, it turns into a 401k and you can withdraw for any non medical reason. Traditional 401k contributions are NOT exempt from FICA and Medicare tax – they are only exempt from Federal and state income tax therefore the money left in your HSA until retirement will never have… Read more »

Carrie
Carrie
7 years ago

Where did you go for your HDHP? We are self employed and looking for the same plan.

Anita
Anita
7 years ago

I am retired, and in Dec 2012 I had 18 months of health care to cover after I finished with COBRA and before Medicare. I am in good health and opted for a high deductible plan ($6000) to reduce my premiums ($390/mo). I thought an HSA would be a good choice, so I applied for and got a Blue Shield 6000 that allowed one. My goal was going to be to max out the account for the year and a half and use it if I needed it, but have it available after I turned 65 to pay for any… Read more »

anonymous
anonymous
7 years ago

Found this helpful post when I was trying to figure out how to decide whether an HSA was right for me. I eventually settled on this calculation & figured I’d post, in case it would be helpful to anyone: If you aren’t maxing out any 401K matching available from your employer, do that before considering the HSA. Otherwise calculate: A) HDHP annual premium – alternative plan annual premium + HSA tax savings (based on your marginal tax bracket and the amount you will deposit [as much as you’re able to, up to the current limit]) – FSA tax savings (if… Read more »

James Cummings
James Cummings
7 years ago

I contributed to an HSA starting in 2004. I have records, receipts, EOBs etc for over $35,000 of Out of pocket health expenses but never tapped the HSA. I am over 65 now and want to close the HSA and use the money on a new home purchase. I have detailed proof that I spent the money on qualifying expenses. I had the after tax money so kept the HSA money. What must I do to avoid paying tax on the money now?

MAC
MAC
6 years ago
Reply to  James Cummings

http://www.irs.gov/irb/2004-33_IRB/ar08.html#d0e1935 Q-39. When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year? A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus,… Read more »

Adrien
Adrien
7 years ago

One thing that was missed is that the savings for having an HSA account are not only tax savings. The premiums on the high-deductible insurance are lower. You have to consider those savings, which add up, in your cost-benefit analysis.

Michelle
Michelle
6 years ago

We have a PPO with hsa account and we absolutely love it. My husband pays 10 dollars a paycheck with a non smoker discount of 10 dollars a month. So total for premiums we pay 30-40. We contribute 32 dollars a paycheck into our hsa account. My husbands company matches dollar for dollar up to 500. So that’s 500 extra each year and we also do yearly health screenings which allows us to earn up to 800 dollars when we meet all the health requirements. That money is deposited into our hsa at the beginning of the year. We pay… Read more »

ajmal javed
ajmal javed
6 years ago

We have a PPO with hsa account and we absolutely love it. My husband pays 10 dollars a paycheck with a non smoker discount of 10 dollars a month. So total for premiums we pay 30-40. We contribute 32 dollars a paycheck into our hsa account. My husbands company matches dollar for dollar up to 500. So that’s 500 extra each year and we also do yearly health screenings which allows us to earn up to 800 dollars when we meet all the health requirements. That money is deposited into our hsa at the beginning of the year. We pay… Read more »

Barry Graham
Barry Graham
6 years ago

We have been using an HSA for the last few years. I must be missing something obvious because I just can’t figure out why anyone who usually doesn’t meet the HSA deductible would want to use anything else. In our case by choosing an HSA for our family of 8 (including 6 children) the reduced premiums save us more than the amount of the deductible, plus we have an HSA that doesn’t expire (unlike an FSA) and can be used for previous year’s expenses (in a year where you do go over the deductible). WebMD’s tool tried to convince me… Read more »

Gerald
Gerald
4 years ago
Reply to  Barry Graham

My family would have to pay $70 more a month for a policy that is HSA qualified $150 different on the deductible… the exact plan but doesn’t meet it is $70 less. It is the only insurance excepted within a 50 mile driving range.

shares