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What to Consider When Opening a Health Savings Account

From Washington to main street, there has been a lot of talk about health care reform and controlling the high cost of health insurance. Health savings accounts give consumers direct control over their health care spending by allowing them to put money aside on a tax-advantaged basis. But before you open a health savings account, you need to consider a number of factors, from your normal health care expenditures to your eligibility for the plan.

  1. Eligibility

    • In order to open a health savings account, you must first have a high-deductible health plan in place. These plans are known in the trade as HDHPs, and if you mention that terminology, your benefit officer or health insurance broker will know exactly what you are talking about. If you get your health care plan through your employer, contact your human resources department to ask if your current plan qualifies. If your current plan is not HSA-eligible, you might be able to change to an eligible plan during the next open enrollment period. If you are shopping for health insurance in the individual market, ask your health insurance broker about HDHP plans that qualify for health savings accounts.

    Health Care Spending

    • Health care costs are notoriously difficult to predict, since the cost of health services seems to rise every year, and you never know when an accident or medical emergency will leave you with a high hospital bill. But if you have a chronic health condition, it might be easier to predict how much you are likely to spend on health care in the coming year. Knowing how much you have spent in the past can give you a good idea whether or not a health savings account will benefit you.

    Contribution Limits

    • Before you invest in a health savings account you need to make sure you understand the contribution limits. If you exceed those contribution limits, you face a tax penalty from the IRS, so always check with your accountant or tax preparer before making your annual contribution. The IRS changes the limits for HSA accounts from time to time, so always check the current rules before putting any additional money into your account. For 2011, the contribution limits are $3,050 for one person and $6,150 for a family.

    Investment Options

    • Health savings accounts are administered by banks, mutual funds and other financial institution. Each HSA administrator provides a range of investment options, and it is important to compare those options carefully. If you hold your HSA with a bank, you might be limited to money market accounts, savings accounts and certificates of deposit. If you open an HSA with a mutual fund company, you might also be able to invest in stock and bond mutual funds. Of course it is not a good idea to put money you expect to need at risk, but if you have a high balance in your HSA, it might make sense to invest some of it in the stock or bond market.

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