You may have heard about a health savings account and how it can occasionally be used in lieu of a traditional health insurance plan. While this is technically true, there are a few reasons why a traditional health insurance plan is preferable. A health savings account is a tax-advantaged bank account that remains in your possession and can be used for health care expenses. It’s very similar to an educational savings account or a tax-advantaged retirement account.
The Benefits of a Health Savings Account
Some individuals prefer a health savings account because it leaves them in charge of their own money; they still are in possession of their money rather than an insurance provider. A health savings account does not entirely preclude the use of an insurance plan; a high-deductible insurance plan is usually still included. Health savings accounts may be beneficial to those who are healthy and who remain healthy for a long period of time, as it allows them to save up for future projected medical expenses. A health savings account can also earn interest, which a regular insurance account does not.
The Drawbacks of a Health Savings Account
Health insurance offers more than just funds for medical care. Through a health insurance provider, many medical costs are vastly reduced compared to the costs that an individual with only a health savings account will experience. And, of course, the health savings account is capped based on how much money has been put into it. Someone with a standard insurance plan could have tens of thousands of dollars in coverage by paying a low monthly fee; someone with a health savings account will have only the exact amount of cash they have set aside. This can become very problematic should someone become seriously injured.
A health savings account is essentially a gamble. For those who are healthy for a significant amount of their lives, a health savings account may allow them to reduce their overall medical expenses while providing some sense of security. But should someone become injured or ill, a health savings account isn’t likely to cover all of their costs — and this can be true even if the injuries or medical costs aren’t significant.