A health savings account (HSA) medical plan is often used in conjunction with a primary insurance plan to pay for medical bills. There are pros and cons to HSAs, many of which are centered on their effectiveness and the ways in which they differentiate from any traditional savings account. Before you invest in an HSA, consider how the account applies to your personal financial situation and how beneficial it is for you to have it.
Pro: Control Over How Your Money Is Spent
The major benefit of an HSA is that you have full control over how your money is spent for your medical care. Moreover, it offers you a cushion for bills incurred outside of your insured medical care. This money can be used for prescription coverage, co-pays, uninsured treatments and even drugstore-related purchases that are medical in nature, such as bandages or over-the-counter drugs.
Con: Inaccurate Budgeting
You may elect to contribute a certain amount to your HSA only to find you've used it all six months into your plan. This means that you have to go the remaining six months paying out of pocket for your medical expenses, which can be financially devastating if your HSA is your primary means of paying for medical care. Alternatively, you also may find that you've budgeted too much and have to use it before the end of the calendar year, resorting to frivolous purchases to do so.
Pro: Contributions May Be Placed In Account Pre-Tax
You can make pre-tax contributions to your HSA, which lowers your general tax liability. You can elect to make contributions after tax, however, if you want the maximum amount of taxes taken from your check to ensure a greater refund and lessened tax liability around tax time. Moreover, if you are 65 or older, you can use the money saved tax-free to pay for the various Medicare programs geared toward seniors.
Con: Difficulty Saving For Older Participants
According to the Mayo Clinic, HSAs have the greatest benefit for younger people that who are fairly healthy. Older individuals may have more health problems and often find it more difficult to build up a substantial amount in their HSAs. Moreover, you can no longer start a new HSA once you've reached the age of 65; you can only use monies already accumulated up to that point.
