Health savings accounts (HSA), a sort of I.R.A. for health care, let people set aside money tax-free to pay for medical expenses, both now and later. Below are some pros and cons to help you decide on if an HSA is right for you.

Pros

• HSAs are designed to help Americans become wiser, more price-conscious health-care consumers.
• Individuals are given more control over health care decisions.
• HSAs allow individuals to set aside and budget money for health-care costs.
• Individuals are given the ability to shop around for care based on quality and cost.
• Individuals can deposit money into the HSA account to cover deductibles and other medical expenses.
• Employers can also deposit money for employees.
• Generally, the account balance earns interest, though some accounts allow holders to invest the money in mutual funds or other vehicles.
• If an employee leaves his job, the money in his health savings account stays with him.
• HSAs have no "use it or lose it" rule, so the funds roll over from one year to the next.
• Money can be placed in your HSA on a pretax basis or may be deducted from your taxable income.
• An account holder pays no tax on withdrawn funds as long as they are used to pay for qualified medical expenses.

Cons

• HSAs favor younger, healthy individuals. Older, sicker people may pay more.
• Illness can be unpredictable, making it hard to accurately budget for health-care expenses.
• Information, such as cost and quality, may be difficult to find.
• The pressure to save the money in your HSA might cause individuals to avoid seeking preventive treatment.
• A health savings account must be paired with a health plan that meets certain criteria.
• If the money is used for any other expenses other than a qualified medical expense, it is subject to income tax and, for those under 65, to a 10 percent penalty.
• Companies that administer the accounts can charge fees for activities such as account set-up, transactions, and closures.
• HSAs have ceilings, indexed to inflation, on annual contributions.
• Health savings accounts cannot be used with many flexible spending arrangements offered by employers.
• Details like fees and investment options vary widely, as do the basics of the accompanying health plans.

Content provided by Geisinger Health Plan ~ 2008