Many consumers can take control of their
health insurance costs. Some can't.
Health insurance buyers are afraid of the consumer driven health plans. They don't understand how they work. They think there will be large gaps in their coverage. The do not understand the tax advantages of the plans. A little education will go a long way toward easing these fears.
Consumer driven health plans put the insured in control. A growing number of consumers are beginning to recognize the tremendous advantages of keeping control of their own health services.
In 2003 Congress approved the legislation which created the Health Savings Account. Unfortunately generally misunderstood, the Health Savings Account is finally becoming a viable and popular option for health insurance.
The biggest deterrent to the concept of the Health Savings Account is that is has to be combined with a High Deductible Health Plan (HDHP). Just the words high deductible strike terror in the hearts of many people. But with both group and individual plans raising deductibles to save on premium costs, a high deductible is becoming ever more common.
But don’t be afraid. The deductible amount is controlled by the IRS and it’s not as high as most people think is it. Another recent improvement, especially in the individual market, came when the major carriers began to pay for preventative services as part of the insurance plan without making the preventative services subject to the deductible..
What is not clear to many is that when an HSA is fully funded, that is, if you deposit the full amount of your deductible in your HSA, you have 100% health insurance coverage.
The best way to understand how the HDHP and the HSA work together is to give an example. Joe, a 42 year old single carpenter who lives in in Connecticut, was paying $475 per month for a PPO with co-pays of $35 and a hospital deductible of $2500. Joe was basically healthy and saw a doctor only 2 or 3 times a year. Joe decided to enroll in an HDHP coupled with an HSA.
Joe was able to get a HDHP from a major carrier for $254 a month with a $1100 deductible. Joe saved $221 a month which he deposited into his Health Savings Account. Under the IRS guidelines for 2009, Joe could deposit up to $3000 in his HSA. Joe plans to deposit his full savings of $221 a month into his account.
At the end of the year, Joe will have $2652 in his Health Savings Account. His deductible is only $1100 so Joe actually has 100% health insurance coverage. His plan has a five million dollar cap, so even if Joe suffers a catastrophic health event, he is fully protected.
If Joe has a heart attack and is hospitalized and requires by-pass surgery, his bill may be as much as $100,000. Joe will pay the first $1100 out of his HSA using pre-tax dollars. The balance of the bill will be paid by the insurance company. Assuming Joe used a network doctor and hospital, which should be no problem because his plan is underwritten by a major carrier with a huge network, there will be no gaps in Joe's coverage and his only liability will be the deductible.
It should be noted here that if Joe had that heart attack when he had his PPO, he would have paid $2500 as his hospital deductible plus all his co-pays.
If Joe does not suffer a catastrophic event and only has a few routine visits to the doctor, he will still be financially much better off then he would be with his old, and expensive, PPO. His HDHP will pay for his annual physical, so Joe will only have to pay for any doctor’s visits, lab work or prescriptions. Assume that Joe has the same number of doctor’s visits as last year, Joe will probably spend $750 out of his HSA to pay for doctor’s visits and a couple of prescriptions.
At the end of the year Joe will still have $1902 in his account and this will roll over into next year and earn tax deferred interest. In addition, Joe will be able to deduct $2652 off the top of his taxes. (Assuming that Congress does not take away this benefit as some are suggesting).
Because Joe still has money in his HSA, next year he may choose to elect a higher deductible, say $2700, which will reduce his premium even more. As his savings account grows, Joe can also use that money to pay for other qualified medical services even if they are not covered by his medical insurance. For instance, Joe can pay for dental expenses or eye glasses or a wide range of qualified medical expenses.
This concept works. Why doesn’t everyone do this? Two reasons stand out. First, the majority of people don’t understand how the HDHP and HSA work together to give maximum coverage at the least cost. Many people looking at an HDHP and HSA for the first time will say, "but it only costs me $20 to see the doctor now, with this plan I would have to pay the whole cost of the doctor visit."
That's both true and not quite true. You will have to pay for the doctor's visit. But the true cost of your doctor's visit is not just the $20 co-pay, it is the co-pay plus the amount of your monthly premium. In Joe's case, a doctor's visit cost him $35 plus the monthly premium of $475 or a total of $510.
The HDHP with an HSA is growing in popularity even in the group market. Many major companies like Whole Foods, Boeing, Target and Best Buy now offer a HDHP with an HSA to their employees. Because in the case of the group market, the employer may contribute to the employee’s HSA, the benefit becomes even sweeter.
The second and more important reason why more people don’t use this kind of plan is because of accessibility. In the individual market, the issue of pre-existing conditions rears its ugly head. Joe was basically healthy and had no problem medically qualifying for an individual HDHP.
But for the people who are not completely healthy, there is an issue of accessibility. Individual plans, in most states, are medically underwritten. That means, if you have a health condition that the insurance company does not want to insure, they can decline to cover you.
This is the issue that Congress needs to address.
Comments
Thanks for a great article. More information about health savings accounts can be obtained at HSAInsights. The site contains great information and resources about HSAs. For example, there is a comprehensive calculator that will let users compare their own current health coverage to that of an HSA (just like your example of Joe the Carpenter). There are other great tools as well. The site doesn't sell HSA's -- it is strictly a consumer education site. Thanks again!
Sheila. Bravo on an extremely well researched article on Consumer Driven Tax qualified Health Insurance. I dare say that you are better versed in these products than the average licensed broker/agent!
It is very encouraging to see these products FINALLY start getting national attention. Considering they have been around since the 1990's.
Your closing point about the underwriting issue is also timely. This is the only problem with this, and all forms of Health Insurance purchased on an "Individual" basis. Many with serious medical conditions can not obtain such products due to underwriting restrictions.
This being the case. Here's an idea for Congress to ponder. Why don't they stop bailing out corporations like GM (letting them file bankruptcy 3 months later)and instead put some Federal "Stimulus" dollars towards making State Risk Pool premiums more affordable? Novel idea? For legitimate insurance options for the "uninsurable" visit
www . sbisvcs .com / guaranteedissueblog .
To C. Steven Tucker
Thank you. It is so hard to tell clients that you cannot help them. At least in Connecticut we have a high risk pool, expensive but available. This week I had to tell an individual client in Michigan that she had been declined, just because of weight (no other health problems). And Michigan does NOT have a high risk pool so my only option for her was a Mini-Med until she can find a job and get group insurance again.
I feel so badly for the individuals who just don't understand why they can't get insurance.
If Washington wants to fix the health care system, the best thing they can do is get the individual carriers to fix the underwriting.
Maybe you remember in Massachusetts 12 years ago, before their current system, Massachusetts had mandated so much broad coverage that virtually all the individual carriers just pulled out of the state.
And, of course, that's the other problem. Health insurance is still controlled by each state. Will states give up contr
Sheila. Actually, since Michigan outlaws all carriers from placing exclusion riders on individual policies they must then offer a guaranteed issue carrier. That carrier is Blue Cross Blue Shield of MI. They will take any one on a guaranteed issue basis. Please contact your client in MI and inform her of her guaranteed issue options through Blue Cross Blue Shield of MI.
The best thing the government can do for those who are labeled as uninsurable is to continue to fund State sponsored Risk pools and help fund those States such as AZ and PA that don't have them and desperately need them. If the Fed is going to "fix" health care by spending over a Trillion dollars. They can do so for a LOT less by vigorously funding State Risk pools. This way the bulk of the risk will stay where it belongs, with the insurance companies. Those who are uninsurable will then have an affordable place to get guaranteed issue legitimate coverage. - Steve Tucker, President- smallbusinessinsuranceservices . c
Thanks again Steve
But we already looked at that an it's way too expensive since she was laid off her job.
But as to the better way to "reform" health care would be to subsidize the state high risk pools-amen. Why can't anyone in Washington see how much sense that makes and how much more cost efficient it would be.
I don't think anyone is really listening
It is maddening to hear the administration accuse nationalize health care opponents of having no solution - HSA is a large part of a necessary solution (consumer awareness and participation!!) I wish the representatives who supported HSA would ACTIVELY support it now. It needs simplification, without a doubt - but that won't require the kind of $$$ the Obama care plans will, and it will have a much better outcome.
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