Health savings accounts (HSAs) are like personal savings accounts, expect the money in them is meant to be used for health expenses. You control the money, and money you put into the plan is not taxed. To be eligible for this type of account, you must have a high-deductible health insurance plan.
These accounts were created to help control health care costs. The idea is people will spend healthcare money more wisely if they’re using their own money. As a bonus, health care providers will be motivated to reduce their rates in order to compete for business.
Advantages and Disadvantages
- You decide how much money to set aside for savings.
- You can shop around to get the best deal.
- If your employer contributes to your account, the money is yours even if you switch jobs.
- Unused money at the end of the year rolls over for next year.
- You don’t pay taxes on the money going into the account.
- Since illness is unpredictable, it can be hard to budget accordingly.
- Health care cost and quality information may be hard to find.
- People who are older or sicker may have a harder time saving money.
- Pressure to save money in the account may keep you from seeking medical help when you need it.
- If HSA money is used for non-medical expenses, you will have to pay taxes on it.
Who can setup a plan?
You can set up an HSA through your employer. If your company does not offer this, you can setup one up through your own bank. You must be under age 65 and carry a high-deductible insurance plan. If you are married and your spouse uses your insurance as a secondary plan, he or she must also be enrolled in a high deductible plan. Your insurance must be your only health insurance plan, but having dental, vision, or disability insurance does not disqualify you from an HSA.