392 / What are the disadvantages of an HSA?

For an individual unable to afford traditional insurance, the HDHP and HSA combination may provide an affordable approach to insurance not possible otherwise. Many people that can afford traditional insurance also choose HDHPs and HSAs because the combination reflects a cost savings and provides more pure insurance rather than pre-paid medical. This background is important because many of the disadvantages of HSAs are only in comparison to traditional low or no deductible health insurance. The following are potential disadvantages of a combination HDHP and HSA.

(1) Higher Deductible. An account owner generally faces a higher health insurance deductible than a person with traditional insurance. This can present an increased cost burden.

(2) Expenses before Savings. An account owner may face a large medical expense prior to having time to build a sufficient balance in the HSA.

(3) More Responsibility for Health Spending. HSAs require individuals to take charge of their own health care spending. This will generally require the individual to devote more time to learning about health care costs and alternatives in order to save on health costs, as compared to a person with traditional insurance coverage where many expenses are simply paid.

(4) Tax Reporting. Account owners are required to account for both HSA contributions and distributions each year on their income tax return. Additionally, the account owner is responsible for saving medical receipts in order to substantiate health-related expenses.

(5) HSA Rules. HSAs, similar to all tax-driven types of accounts, can become complicated. The account owner is responsible for learning the HSA rules and following them in order to avoid negative tax consequences.

(6) HSA Maintenance. The account owner is responsible for maintaining the HSA, paying medical bills, monitoring the balance, choosing beneficiaries, and otherwise maintaining the HSA.