The benefits (and the catch) of health savings accounts

It's benefits open enrollment season at many employers, and workers are increasingly likely to hear about an option known as an HSA that can help them pay for medical expenses and save money on their taxes.

HSAs, or health savings accounts, are not yet as familiar as their better-known cousin, the FSA, flexible spending account. But HSAs are becoming more common.

Devenir, an HSA services firm, reports that the number of HSA accounts increased by 16 percent year-over-year as of June 30, to more than 21 million. Assets held in the accounts grew 23 percent, to just under $43 billion.

HSAs offer a triple tax benefit. Contributions can be deducted pretax from your paycheck, lowering your taxable income; any interest or investment gains on the money is tax-free; and withdrawals from the account are tax-free, as long you spend the money on eligible items.

And if you change jobs, the HSA moves with you.

But there's a catch: The savings accounts are only available with certain health insurance plans meeting specific criteria, like high deductibles — at least $1,300 for an individual and $2,600 for a family. (A deductible is the amount you pay for care before your health plan pays.)

The Employee Benefit Research Institute, which tracks a database of 5.5 million health savings accounts totaling $11.3 billion as of the end of 2016, found that HSA-eligible health insurance plans covered nearly three in 10 employees last year.

You can set aside as much as $3,400 for an individual, or $6,750 for a family, in an HSA. You can leave the money in a basic, interest-bearing savings account or, in some cases, invest the money — just as you would with a 401(k) retirement account — for the long term.

Ryan McCostlin, an expert in individual and family health care at the advisory firm Bernard Health, said the tax-free growth available with HSAs made them powerful savings tools. "Consumers should put that money in the market and let it grow slowly over time," McCostlin said in an e-mail.

Fidelity, which offers HSAs, said money invested in a health savings account could help provide cash to cover needed health and medical costs in retirement. It estimates that a 65-year-old couple retiring this year will need $275,000 to cover health and medical costs throughout retirement. (The cost estimate assumes enrollment in Medicare coverage but does not include extra costs like a nursing home or long-term care.)

Many HSAs, however, require that you have a minimum amount saved before you can invest. The idea is that you should have some money set aside before you take investment risks.

"If you will need the funds in the near future to pay medical bills, it may not make sense to invest," said Roy Ramthun, an HSA consultant.