When I first looked at a Health Savings Account I had a hard time seeing why everyone wouldn’t have one of these instead of traditional health insurance.  Basically if you spend much less on health insurance because you have a high deductible health plan (hdhp) and the money saved can be deposited into the health savings account to cover anything insurance doesn’t pay for.

While examining the HSA Rules I saw that whatever money you don’t spend this year can be rolled over to the next year!  It grows tax deferred like an IRA Account and most of the Banks offer a multitude of investment options once your balance reaches a certain level.  If you use the money for qualified medical expenses then it remains tax free.   Once you turn 65 you can use the excess money for whatever purpose you want.  Extra retirement money, what a great deal huh?

So what’s the catch?

Well, there isn’t a whole lot.  There has always been a caveat that if you used the money for non-qualified purchases the money is taxed and subject to an additional 10% penalty (similar to IRA penalties).  This penalty was increased to 20% this year as apparently too many people were raiding their HSA funds.  The way I look at it is that this money is designated for your health care and would’ve been given to the insurance company had you kept a low deductible health plan.  So I agree there should be a penalty for spending it frivolously.

Another issue is in the first months you don’t have much money in the account unless you can start by making a reasonably large deposit into the account.  Most people (like my wife and I) have an HSA through work so a monthly pre-tax deposit is made through a payroll deduction.  So the first year we didn’t have a whole lot of money in there to work with.   Luckily we had no major bills and after the first year we had a comfortable margin which has grown to over $6000 now.

The other thing that pundits tend to think is that people who have HSA plans will wait longer before going to the doctor since they are spending their own money.  This has definitely not been an issue for us.  If someone is sick we go to the doctor in fact ours pays for an annual physical so we see the doctor more often than we did on our old health plan.  I think part of the problem with our health care system is too many people who run to the doctor every time they have a sniffle and there isn’t much a doctor can do for those cases anyway.

Overall, if you feel that you have the financial reserves to risk a $2400 deductible in the first year I would highly recommend checking into an HSA.  It’s probably best to start one in April after you get past cold and flu season, especially if you have children in school or daycare.