When an HSA is Not a Good Idea

It is open enrollment season (at least here in the US.) That means selecting health coverage for 2017 and deciding whether an Health Savings Account (HSA) is right for you. The early retirement community is obsessed with HSAs, and naturally so. Still, it’s not right for everyone and today’s post will address when an HSA is NOT a good idea.

For those unfamiliar, an HSA acts as a sort of IRA/401(k) on steroids. I dove into the IRS reglulations and outlined the key numbers surrounding the HSA in a recent article. The short version is, an HSA is a powerful retirement tool where tax contributions and distributions are tax free AND avoid FICA taxes. No other retirement vehicle comes close when it comes to tax efficiency.

Of course, the one catch is you need to spend the money on, “qualified medical expenses,” but luckily, that bucket contains a lot of items. We can also spend the money many years after we make contributions. If you want to see me discuss the pro’s and con’s, then check out my prior article: Health & Taxes: What’s an HSA Anyway?

Is an HSA Right for Everyone?


No. Even in the Distilled Dollar household we have opted for one HSA eligible plan and one plan without an HSA.

We settled on these plans due to personal choice. At the end of the day, optimizing our net worth is not the end all be all and takes a back seat to us making the decisions we feel are right for our health.

What do I mean by personal choice?

For me, HSA’s represent a tax efficient vehicle to build an additional retirement nest egg. It also serves as a constantly growing asset that I can use to offset current or future medical bills. I’m fortunate that the fee structure of my HSA is relatively low (no monthly fee, for example). I’m also hesitant to visit the doctor in the first place as I, in full millennial fashion, basically tough it out until I get better. At the end of the day, if I’m sick and needed to have a major medical procedure done, my current HSA can pay the full deductible nearly twice over.

For my fiancée, things are different. She prefers to visit a doctor as soon as something comes up. She errs on the side of caution. For these reasons alone, I think she is better off with a low deductible, high premium healthcare plan.

Sure enough, as if fate had intervened to prove our decision a wise one, my fiancee recently discovered she needed knee surgery because her tendon decided to retire early. No doubt, this surgery would have likely negated the savings we could have seen with an HSA, so we’ve netted out a positive result from her plan.

If you have expected, high cost medical care in the following year, then an HSA is NOT a good idea.


If you’re not sure, then I would weigh the pros and cons and pick what feels more comfortable. As I mentioned above, optimizing our net worth in any given year should not mean losing sleep.

Is an HSA right for you? Do you know other times when an HSA is not a good idea?

Master Distiller