Business Health Savings Accounts – Pros And Cons

In this article I’ll tell you about Business Health Savings Accounts – Pros And Cons. Health savings accounts came into place through the Medicare Prescription Drug Improvement and the Modernization Act 2003. Health savings account is basically a form of bank account which can be opened for saving money for future medical expenditures. The money which is deposited into the account is absolutely tax-free signifying that it can even be tax-deductible.

Business Health Savings Accounts - Pros And Cons

The main aim of the government with regard to setting these accounts in place is to curtail healthcare costs and help people develop greater awareness as well as make them self-reliant, as far as personal healthcare expenses are involved. Healthcare expenses have risen around 8% to 10% every year during the last couple of years and the likelihood of it growing about two or three times the inflation rate is very strong in near future.

Through a health savings account, an employee makes savings and the withdrawals are tax free if used for “qualified medical expenses”, basically a type of business health insurance. The unused funds can be rolled over, without penalty and may be used after retirement for any purpose. However, notwithstanding the advantages that come with a health savings account, there are certain disadvantages too.

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Cons

– It is only those who are under 65 years of age qualify for a health savings account. This is a very big drawback as elderly people over the age of 65 are the ones who require most of the medical treatments. Even if you are eligible for it, you should already have a health insurance program with a high deductible. This implies that even if you already have been covered for a few costs, you are still expected to make a premium payment for any service which is rendered on account of the greater deductible you have been paying.

– Another drawback associated with health savings account is that people generally stop looking for preventative treatment. They are under so much of pressure for keeping money in the health savings accounts that they feel spending money on preventative treatment is useless. On account of this, there is a general tendency to ask for treatment only when the specific illness becomes critical and assumes serious proportions and thus entail a huge expenditure.

Another problem is that health care expenses are difficult to predict. Thus determining how much exactly you should keep in your health savings account and also how much should be in your own pocket becomes no doubt difficult. Out of pocket expenses can run into thousands prior to insurance coverage kicking in.

– Because HSAs can be difficult to understand, majority of employers need to find an administrator to manage HSA administration. This may result in extra resources being dedicated for this purpose.

Pros

– Employers as well as individuals can make contributions that are tax free.

– The government will not tax the money so long it is used for health related issues.

– The high deductible health program comes with payment of lower premiums.

– Fosters a greater sense of security with extra cash being available, should an individual run into an emergency.

It is up to an individual or a business house to decide whether to go for a health savings account or not.

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