Despite all its benefits, there are still some disadvantages of an HSA. Before establishing a health saving account for your small business, consider the following drawbacks:
HSA requires an HDHP for an insurance company – A High-Deductible Health Plan is required to qualify for an HSA, which can result in a greater financial burden than other types of health insurance.
HSAs can pressure account holders to save – Some people might be more reluctant to seek healthcare when they need it because they don’t want to spend the money in their HSA account, instead of saving it for retirement.
HSAs can result in tax penalties – If not used properly, an HSA could result in a tax penalty. If funds are withdrawn for a non-covered expense before the age of 65, the money becomes subject to income tax and penalties.
HSAs require recordkeeping – Some people might be reluctant to participate in an HSA because of the need to keep receipts that prove withdrawals were for qualified medical expenses.