Posted on Oct 29, 2021

Ron, a single Millennial, was given the option by his employer during the annual enrollment period to choose a high-deductible health plan (HDHP) with a health savings account (HSA) instead of the HMO he usually selected. The premium was much lower and his employer would contribute $1,000 to the account. Ron was healthy and usually went to the doctor just once a year for a physical.

It seemed like a good choice; Ron would save hundreds of dollars a year on premiums and could contribute to the HSA himself, pre-tax. His health insurance wouldn’t kick in until after he spent $1,400 of his own money, but he felt he could cover that amount if necessary. Another attractive feature was that the unspent funds in the account would roll over year to year. If Ron left his job, these funds were his and the HSA would remain with him.

High-deductible health plans (HDHPs) paired with health savings accounts (HSAs) have become more a more common offering by employers and increasingly popular with employees, particularly younger workers. HSAs were introduced in 2004 as a way to help control health care costs, and like any health care option, there are pros and cons. Here are the primary advantages of HSAs:

  • Employers and employees can make contributions to the account with no minimum contribution required
  • The owner of the account is the employee, not the employer
  • Employer contributions are not taxable to the employee, and employee contributions can be made on a pre-tax basis through a cafeteria plan
  • Cash balances in the HSA roll over to the next year, and the HSA is portable from job to job
  • The account owner can use funds from the HSA to pay for qualified medical expenses even after retirement

HSAs may not be the best choice for individuals who would find it difficult to meet a high deductible and/or anticipate needing expensive medical care. And while an HSA encourages the account owner to shop around for the best rates for health care services and procedures, pricing information can be difficult to obtain. Moreover, individuals may be less likely to seek medical care when they need it because of the high deductible or pressure to save money within the HSA.

As with all health insurance plans, it’s important to fully understand what’s covered in an HSA, and what the deductibles and premiums are.


This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.

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