The Pros and Cons of Health Savings Accounts


Authored by Kate Beswick in Banking 
Published on 07-13-2009

Health savings accounts were originally set into place by the Medicare Prescription Drug Improvement and Modernization Act in 2003 and they are becoming increasingly popular. A health savings account is a bank account that you can open in order to save money for future medical expenses. Any money that is deposited into these accounts is completely tax-free, meaning that they can also be tax deductible. The government set these accounts into place in order to cut back on the cost of health care and making people more aware and self-reliant on their own health care costs. So what does this mean to you if you’re interested in opening a health savings account? First you must consider your own personal situation to see if you’ll benefit from this type of plan or if you’ll end up paying through the nose because of it.

If you are interested in opening a health savings account, you must first find out if you qualify. Only people under the age of 65 are eligible and even then, you must already carry a health insurance plan that has a high deductible. This means that even though you are already covered for some costs, you still must pay a premium for any services rendered because of the high deductible you’re already paying. This also means that those who are over the age of 65 are not eligible. This is perhaps one of the biggest drawbacks of these types of plans. This restriction means that those who are elderly will not be able to open one, even though they might be the ones that need them the most.

Another drawback is that the safety net these accounts provide can be just the thing that stops people from finding preventative treatment. Because people are under such pressure to keep money in health savings accounts and because they’re under even more pressure to keep it there, the cost of preventative treatment may not seem like a worthwhile reason to spend money. Because of this, people will only seek treatment when a particular illness or condition becomes very bad, and very expensive. This argument against health savings accounts goes hand-in-hand with the fact that the exact cost of sickness is often hard to predetermine, as is when one will strike. Because of this, health care costs are some of the most difficult to budget and therefore, determine how much you need in your health savings account and in your pocket!

But health savings accounts aren’t all bad and for some people, they can provide the perfect solution. Because any money deposited into the account is tax-free, it can really save you at tax time. Plus, you’ll have some extra cash should you run into a medical problem. Add to that the fact that your employer can also contribute to your health savings account and this can be just the thing to replace employer-based health plans. These plans can also allow you to compare different medical practices to see which will give you the quality of care that you need. This differs from some past plans that dictated where one needed to go in times of sickness and only provided for minimum care.

However, even if opening a health savings account will benefit you, there are still some major cons that you need to be aware of. The biggest drawback is that withdrawing the money before an illness strikes carries a 10 percent penalty attached to it and any money withdrawn will also have taxes placed on it.


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