Disadvantages of health savings accounts

If you qualify for an HSA, here are some downsides to consider:

High deductible requirement

An advanced deductible health plan, which requires you to qualify for an HSA, can put a greater financial burden on you than other types of health insurance. Although you pay less in premiums each month, it can be difficult, even with money in the HSA, to raise the cash to meet the deductible for an expensive medical procedure. This is something for anyone who knows that they will have high medical bills in a particular plan year.

Deductions for HDHPs are often much higher than the required minimums and can be as high as the maximum allowable out-of-pocket costs.

Pressure to save

Some people may be reluctant to seek medical care when they need it because they do not want to spend the money in their HSA account.

Taxes and penalties

If you withdraw funds for unqualified expenses before your 65th birthday, you will be liable for income tax on the money plus a 20% penalty. After age 65, you will be responsible for taxes, but not for the penalty.

Registry mantenance

You should keep receipts to show that your withdrawals were used for qualified medical expenses. This will be necessary if inspected by the IRS.


Some HSAs charge a monthly maintenance fee or transaction fee, which varies by institution. While they are not typically very high, the fees are certainly higher than any interest the account may earn and cut back on its baseline. Sometimes these fees do not apply if you maintain a certain minimum balance.

The baseline

If you’re enrolled in a highly deductible health plan, the tax benefits of the HSA and the ability to roll over unspent money are attractive. But high deductible health plans are not always the best option, especially if you expect to incur significant health care costs.