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Health Savings Account Negatives

A health savings account, or HSA, is a good way to put money aside for medical expenses not covered by your health care plan. The idea behind health savings accounts is that consumers make smarter health care decisions when they spend their own money, but there are some potential drawbacks to this arrangement as well.

  1. Must Have HDHP

    • In order to be eligible for an HSA, you must first have a high-deductible health plan, or HDHP. The IRS has established very strict criteria for those plans, and not all health care plans will qualify as HDHP plans. With a high-deductible health plan, you must accept a higher deductible than you might be used to, and that could open you up to higher costs than you are comfortable with.

    Contribution Limits

    • The contribution limits for HSA accounts might not be sufficient to cover the required deductible on some high-deductible health plans. That means it can take a few years to build up sufficient capital to cover all of the expenses not covered by your health plan. For 2010, the maximum amount of money you can contribute to a single HSA is $3,050. If you have an HSA that covers your entire family, you can contribute up to $6,150 to your plan.

    Limited Choices

    • When you put money aside in an HSA, the number of investment choices you have might be quite limited. Many HSA accounts are administered by banks, and the options offered often include only a money market fund and savings account. Even when mutual funds are offered, the number of funds is often limited. These limitations might not be important when the account is small and used primarily to pay for current expenses, but as the amount of money on deposit grows, you might want to put some of that money to work earning a higher return than what you could get in a savings account.

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