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The Pros and Cons of Health Savings Accounts

May 4, 2017

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?

health savings accounts
CCIG’s Scott McGraw.

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 …

  • HSAs are designed to offer the user triple tax benefits – you put money in tax-free, it accrues interest tax-free and you can withdraw it tax-free (for all preventive care visits and other qualified medical expenses).
  • you can budget how much to contribute;
  • unspent dollars are rolled over each year, making it a good retirement savings vehicle as well. An analysis by Fidelity Investments found that while more people are using HSAs, they’re not spending as much as they thought they would: Three-quarters (76 percent) of HSA account holders withdrew less than they contributed to their HSA.

… and the drawbacks

  • it’s not easy to accurately budget for your annual medical expenses, because illness is unpredictable. On the other hand, most people have those unspent dollars from previous years that they can use.
  • finding accurate information about health care costs is sometimes difficult, making budgeting sometimes harder than it should be. But, again, there are those unspent dollars.
  • if you do not budget enough for a given year, you may have significant, unexpected out-of-pocket costs, especially if you face a large medical expense. That said, you can direct more dollars into your HSA as needed, up to the annual contribution limit.

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

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