A growing number of companies view health savings accounts, or HSAs, as part of their employees benefits strategy. That makes good sense at a time when millions of Americans are looking for ways to save on health insurance, control health care spending, and reduce their taxes. But what are the pros and cons?
Although HSAs can be a cost-effective option for many individuals and families, they might not be the best choice for everyone.
Annual contribution limits for HSAs this year are $3,400 for individuals and $6,750 for families, plus an additional $1,000 catch-up contribution for account holders age 55 and older. These limits would rise substantially under various Republican efforts to repeal and replace the Affordable Care Act.
Comparing HSAs to traditional health plans can be difficult, as each has pros and cons. For example, traditional health plans typically have higher monthly premiums, a smaller deductible, and fixed copays and/or coinsurance. You pay less out-of-pocket due to the lower deductible and copay, but pay more each month in premium.
HSA plans generally have lower monthly premiums and a higher deductible. You may pay more out-of-pocket for medical expenses, but you can use your HSA to cover those costs, and you pay less each month for your premium.
Here’s a quick look at the benefits …
… and the drawbacks
How to decide
The decision is different for each individual. If you are generally healthy or have a reasonable idea of your annual health care expenses, then you could save a lot of money from the lower premiums and valuable tax-advantaged account with the HSA plan. For example, even someone with a chronic condition could take advantage of an HSA if you have an idea of your annual expenses and budget enough money to cover your care.
However, if you are older, more prone to illness or unexpected medical conditions, or prefer certainty in medical costs to the possible risk of unexpected out-of-pocket expenses, you may want to stick with a traditional plan. You’ll pay more in monthly premiums, but will have fixed copay or coinsurance amounts.
Whatever your calculation, there’s little doubt HSAs will continue to grow. In the 10 years from 2006 to 2015, HSA assets surged from about $1.7 billion to $30.2 billion.
Scott McGraw is Vice President of CCIG’s Employee Benefits division. He can be reached at 720-330-7924 or ScottM@thinkccig.com.