Top 5 Pros and Cons of a Health Savings Account

Top 5 Pros and Cons of a Health Savings Account


Health Savings Accounts (HSAs) are often said to be the solution to our healthcare problems. However, many people who have used HSA accounts understand that the patient is responsible for all of their medical costs until the annual deductible gets met. These deductibles can be quite high, and if someone has to pay all the money at once, it leaves them in a severe financial debacle.

Generally, an HSA is connected with high-deductible insurance plans that require the patient to pay thousands of dollars before their insurance begins to kick in. Many of these high deductibles are unaffordable to everyday people and are leaving them with bills that they don’t have the means to pay.

In this piece, we are going to explore how an HSA might work for some people but will not benefit others due to high deductibles that many individuals may not be able to afford.

The Pros of HSAs

An HSA has high deductibles and your insurance company won’t help you until you have reached a certain amount of out-of-pocket expense for the year. Despite these facts, HSAs have a positive side. Most of these appealing factors are more attractive to the high-income earners among us.

The positive side of HSAs include the following:

Reason #1: High Deductibles

HSAs require a high-deductible health plan (HDHP). In order to get an HDHP, you need to have a minimum of $1,350 (individual) or $2,700 (family) deductible. There is a last-month rule that allows taxpayers to still be considered eligible if they are eligible on the first day of the last month of the tax year. December 1st is the date for most people.

Reason #2: Employees Can Invest in Their Own Health

Investing in an HSA allows you to get a tax write-off that will lower the amount of taxable income that you earn. The trick is that the money that goes into your HSA account is taken out before taxes apply to your pay. Taxpayers can put up to $3,450 (individual) in 2018, and that amount will be up to $3,500 (individual) in 2019. Individuals over 55 can add an extra $1,000 to their HSA account annually. Family contributions get capped at $6,900 for 2018 and $7,000 for 2019.

Reason #3: Employers Can Make Contributions

Many employers are happy to contribute to the HSA for employees who put their money into the account. This contribution from employers essentially means that the employee is getting free money committed to their healthcare.

Reason #4: HSA Contributions Can Be Taken Off of Taxable Income

Everyone can take the entire amount of money put into their HSA off of their taxes even if they don’t itemize their taxes. All contributions are made from pre-tax dollars, and higher income earners can undoubtedly benefit from a reduced tax bracket due to their contributions to their HSA accounts.

Reason #5: Money Can Be Saved in an HSA

HSAs allow people to save money for future medical bills if it’s not used all at once or during that specific year.

The Cons of HSAs

As there are positives to HSAs, there is a host of negatives to having one. Keep in mind that these negatives are magnified for low-to-middle income earners.

The negative side of HSAs include the following:

Reason #1: Low-Income Individuals Cannot Use HSAs

Low-income people are less likely to have the extra money to tuck away in an HSA.

Reason #2: Many Middle-Class Individuals Can’t Afford HSAs

Middle-income families with a lot of medical expenses will likely find an HSA account saves them money in the long run. However, many find themselves struggling or unable to pay the initial deductibles that are required to get the assistance HSAs offer to become activated.

Reason #3: HSAs Only Work with Solid Investments

HSAs are only the most productive if they’re put into substantial investments that provide a good return on the person’s money. It will allow them to cover potentially significant medical expenses that one might incur throughout life.

Reason #4: Only Some Self-Employed People Make Enough to Use HSAs

If interested, self-employed workers may use HSAs to lower their taxable income. However, many independent people who have a lower income will find the copayments for HSAs utterly unaffordable in the first place.

Reason #5: Lowest-Income Individuals Need Help to Get HSAs

Some individuals may have to become a part of the Cost-Sharing Reduction (CSR) plan for those who make 250% of the poverty level or less.

HSAs can be a valuable resource for lower taxes and provide financial means for healthcare for those who are higher-income earners. Lower-income earners and many in the middle class will not even be able to afford the deductibles or have the money to put into the account in the first place. For these individuals, the HSA accounts are impractical, and many are unable to use them.

TPI Group is here to help you organize your finances and provide advice for your gain. We’ve worked with a multitude of industries and high-income individuals, including doctors and lawyers. Contact us today at (703) 288-1998 to see if you should consider an HSA.