10 Reasons to use a CDHP with a Health Savings Account for your health insurance

June 19, 9:11 AMHealth Care ExaminerSheila Guilloton

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HSA funds belong to you and you control how,
when and where you spend it
 

Consumer Driven Health Plans coupled with a Health Savings Account may be the smartest and  most cost efficient method of obtaining quality health insurance available today. Why?

1.  Premiums for CDHPs are consistently lower than with an HMO, PPO or other indemnity plan

Rates and plans will vary from state to state, but there are always savings. This is true for either the group or the  individual market. All recent surveys have shown consistent savings in both markets.

2.  Renewal increases are lower for HDHPs

Again, renewal rates will vary by state and carrier but on average renewal rates for HDHPs are one third to one half the annual renewal rate for traditional plans, including HMOs and PPOs.

3.  Consumers can fund a Health Savings Account with the premium savings

Using the premium savings realized by switching to a HDHP to fund a Health Savings Account makes good financial sense. With traditional HMO and PPO plans, even if you are healthy and rarely use your coverage  the insurance company does not return any of your premium. Consumers who have coverage that they rarely use are a big part of the profit margin for insurance carriers.

With a HDHP, if you have a good year and rarely see a doctor, all the money left in your Health Savings Account is yours to keep.

4. Health Savings Accounts (HSAs) have terrific yearly tax benefits

Money deposited into a Health Savings Account is tax free. You may deduct the entire sum deposited into an HSA. Even if you spend all the money in your HSA on medical expenses that year, the full amount that you deposited still is deducted from your adjusted gross income.

The only time you would pay taxes on the money in an HSA would be if you used the money for a non-medical expense.

5.  Health Savings Accounts earn tax deferred interest

The funds in an HSA earn interest and that interest is also tax deferred.

6.  HDHPs save money for those who are sick not just the very healthy

A good HDHP will be written to provide 100% health insurance coverage. The HDHP has a fixed deductible selected by the insured. Unlike with HMOs or PPOs that have deductibles based on certain services and may also have co-insurance.

The HDHP guarantees a fixed out of pocket amount, the deductible. Consumers can depend on that being their total cost (assuming their HDHP was written as a 100% plan). There is no guess work about the maximum out of pocket cost in any given year.

7.  HDHPs work for the middle class as well as the wealthy

Recent studies have shown that the majority of new enrollees in HDHPs with HSAs have incomes under $50,000. While it is true that the tax deductibility of the HSA is more important for a tax payer in a high bracket, even lower earners, get the benefit of the lower premium.

8. HDHPs give the insured better control over their own health care

Consumers with HDHPs have more control over what providers they use and what procedures they want. For instance, many people find they would like to try and alternative remedy for a problem. The option is available because they can pay for alternative procedures out of their HSAs and still have the same tax treatment as those using traditional treatments.

One caveat to remember. If you chose an alternative treatment it probably will not go toward your deductible so if you have a medical expense later in the year, you might have additional out of pocket costs.  I recommend that people not use their HSA money in the first year of htier program except for medical expenses that do go toward your deductible.  By the second year, mopst people have sufficient funds to pay for non-medical but still qualified expenses.

With a well funded HSA, the choice is always yours. You make the decisions, the insurance company does not.

9.  HDHPs allow consumers to be better shoppers for medical services

When you are using your own money to pay for something, most people tend to check out the relative costs.  It is no different with  medical services.  For years insurance companies have complained that consumers paid little attention to cost versus quality in medical services.

With the consumer driven plans, people are much more likely to discuss all the possible treatment options with their doctors and learn how to get the best value. New tools are being made available to members of certain insurance companies that help the insured compare prices of services between network providers. There are also rating tools that compare quality of the service.

Interestingly, in some case the facility or provider with the highest rating for quality is one of the lowest in cost.  For instance, the famous  Mayo Clinic has one of the highest ratings for quality services and still has one of the lowest cost points. Having this information readily available allows the consumer to make the very best choices when it comes to health care.
 

10. Insured persons with HDHPs with HSAs are extremely satisfied with the costs and coverage

From time to time I have run across clients for whom traditional coverage is a better option than a HDHP. But in my experience, these cases are rare.  However, they do show how important it is to make your health insurance decisions with a well qualified agent who is particulary familiar with the nuances of the health insurance market.

When these plans were first introduced they were a bit confusing.   Even today, many agents can not adequately explain the plans and tax benefits.  The concept is unlike traditional insurance and takes some getting used to.   In the group market some employers introduced the plans as a benefit option but did very little to educate their employees as to how to use their coverage.

But as more people began to enroll, word of mouth began to drive people to inquire about the benefits, savings and features  of the HDHP.  Some people got it right away. Today, a great many people still do not understand or even know about the HDHP and HSA plans.

But as costs of tradtional insurance increased and satisfaction decreased , more and more consumers found themselves drawn to the concept.   Enrollments in HDHP plans with companion HSAs is up and rising at a brisk pace.

Let us hope that Congress , as was hinted,  does not destroy the value of the HSA by reducing the tax benefits.