So you're either looking into opening a health savings account (HSA) or maybe you already have jumped into one... and now are realizing you may not know exactly what you got into. It happens. We get excited about something that has a new, shiny glimmer of being better than what we have and then unknowingly block out some pretty hefty factors of the decision making process.
This list is neither to encourage nor discourage applying for a health savings account, but rather to shed light on some potentially negative consequences. Not to say health savings accounts are "bad", but all health care options have their upsides and downsides.
1. You are responsible for everything
In fact, you are prohibited from delegating responsibilities to your employer or HSA trustee. Such responsibilities include determining:
- Who's eligible to make contributions
- How much to contribute
- How your HSA funds are spent
- Whether the distributions are taxable or nontaxable
All of that responsibility may seem daunting, but it's not against the law to provide HSA education. Employers and institutions are not required to help, but some may offer guidance when it comes to learning how the account works. You just need to be the one making the decisions.
2. Spousal coverage works against you
The coverage you would normally qualify for under a spouse would disqualify you to participate. You make yourself ineligible to participate if you try to use a traditional plan in combination with an HSA. ALL other full-coverage plans work against you. You get the idea.
Here are a few samples of HRAs/FSAs that play well with HSAs:
- Dental Only
- Vision Only
- Long Term Disability
3. Multiple health plans under the same household can get confusing
If either spouse has family coverage, then both are treated as having family coverage - unless they do not cover each other and cover other dependents.
If a spouse has single-coverage under a high-deductible health plan (HDHP) and the other spouse has family coverage under a non-HDHP plan (covering dependents other than the spouse) then the one with the HDHP would be able to contribute to the HSA under the single-coverage rate.
If either spouse is 55+ years old, then their respective "catch-up" contributions must only be applied to their own account.
4. Not all employer contributions are tax deductible
If you've already met your annual contribution limit, then any excess deposits are included in your annual income... and you have to pay taxes on them.
This also means that if by tax time you have an excess balance pending rollover, then you will incur the penalty tax.
For a more in-depth look into HSA's, view our "The Best Introduction to Health Savings Accounts" guide.