What Is the Downside of an HSA?

Health savings accounts were created in 2003 as a way for individuals to use income before it was taxed to pay for health-care expenses. However, policy and financial concerns have been raised by critics.

Background

• Consumer-driven health plans combine a health savings account with an individual health insurance plan with a high deductible. The HSA is used to pay off the deductible and other costs.

Benefits for the Wealthy

• Americans in higher income brackets get more of a tax break if they use an HSA than those who make less money because their income goes into the account tax-free, and they generally have more money to contribute into an HSA.

Lack of Pooling

• Health insurance works on the principle that the costs of expensive procedures will be less expensive if they are spread over a large number of insurance customers. That doesn't occur with individual health insurance plans.

Premium Increases

• The attraction of a high-deductible health plan was that monthly premiums were often lower than in other options. However, rate increases occur across the board, minimizing some of the benefit.

Use as Tax Shelters

• Health Savings Accounts can be used like 401Ks, in that money can be left in an HSA until retirement--and be used for medical expenses with no tax penalty upon withdrawal.