Cons of Health Care Savings Plans

Health care savings plans came into existence in 2003 when the US Senate passed the Medicare Bill. Also known as Health Savings Accounts (HAS), the plans encouraged people to save money in these accounts to pay for qualified medical and health expenses while they are employed and after they retire. Currently, individuals can deposit up to $3,000 per year and families up to $6,000 per year into their HSAs with full tax exemption.
However, HSAs or health care savings, like anything else, has pros and cons.

Out of Reach

• One of the criteria for joining a health care savings plans is a high deductible health plan, a plan that has low monthly premiums but require the plan holder to pay significantly higher amounts in medical bills before the insurance payments kick in.

  This would be different from a standard health plan, which covers all medical expenses at a high premium cost. In 2008, the minimum deductible for eligibility for a health care savings plan was $1,100 for individual plans and $2,200 for family plans. While these figures might not seem significant in terms of health care costs, they place HSAs more or less out of reach of common people.

  People in the lower-income groups rarely tend to have disposable incomes of $1,100 or $2,200. Most of the time, they would not even be able to pay for the higher deductible health plan, so a health care savings plan is more or less something they can only dream about.

No Good for Severely Ill

• According to an analysis carried out in 2006 by the Georgia Budget and Policy Institute, health care savings plans are not really good for those who are severely or chronically ill or are disabled. Because such people would require regular medical care, which would generate high medical bills. In such a scenario, the chronically ill patients would be better off with standard health care plans as they would not be able to save much in their health care savings plan.

Lets Employers off the Hook

• Health care savings plans allow employers to get away with spending less on employee health care benefits. By switching employees over to high deductible health plans, employers are required to pay less in insurance premiums. While employees would be able to get benefit of HSAs, they would be at a disadvantage as the savings would be out of their own pockets and they would not be getting the same insurance coverage as a standard or group health care insurance plan from their employer.

Limit on Contributions

• A major disadvantage of health care savings plans is that individuals are restricted from contributing as much as they want. The upper limit for contributions is at the same level as the lower end for allowed deductibles in high deductible plans. What this means is that individuals would have to pay more medical bills out of their own pockets before they can get health care savings plans or insurance benefits.

Taxable and Penalized Withdrawals

• While contributions to a health care savings plans are exempted from taxes, the same does not apply for withdrawals. If the money deposited into an HSA is withdrawn before the age of 65 years, the withdrawn amount attracts a penalty of 10 percent, plus the applicable taxes.