Conceptual Shift: Health Plans and HSA

A Conceptual Shift:
High Deductible Health Plans & Health Savings Accounts
 

Whether you are paying premiums for just yourself or as an employer for your group plan, High Deductible Health Plans and Health Savings Accounts are definitely worth a look.   


THE CONCEPT
 

High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) are part of a larger trend often referred to as “consumer driven health care.”   Health care costs are increasing at a rate of about 17% annually.  The HDHP/HSA combination offers one way to help you, the consumer, take control.
 

SO HOW DOES AN HDHP/HSA WORK?
 

FIRST, you must be purchasing a qualified High Deductible Health Plan (HDHP).  This is the insurance part of the equation.  Almost all services (including office visits, lab & x-ray, hospital, etc.) and prescription drugs will be subject to your deductible.  After your deductible is met, you’ll pay a coinsurance amount (usually 20-30%).  These plans are almost always among the lowest cost plans offered by a carrier.    
 

The SECOND part of the equation is the Health Savings Account (HSA).  This is simply a bank account designated specifically to be paired with a qualified HDHP.  These types of accounts come with rules set by the IRS and some very nice tax advantages.  Here is a short summary: 

  1. Annual contributions cannot exceed $3050/individual or $6150/family in 2010.  It is important not to exceed these maximums as a penalty will be assessed. (The IRS resets maximums annually.)  
  2. Funds contributed to an HSA are tax free.  Earnings are tax free.  (Much like contributions to an IRA.)
  3. Funds withdrawn to pay for qualified medical expenses are not taxed. For a list of eligible medical expenses go to   http://www.hsabank.com/hsabank/Education/Eligible_Medical.aspx and download the quick reference list.
  4. Funds withdrawn for non-medical expenses will be taxed and a penalty assessed.
  5. Your HSA account belongs to you and the funds can be rolled over from year to year.  You control your healthcare dollars and decide when to withdraw funds to pay for medical expenses.
     

(This is a short summary of HSA rules and advantages.  Always, consult your tax advisor and/or the IRS for details and reporting requirements regarding taxation, rollovers, and other stipulations.  Here is a link to detailed IRS information http://www.irs.gov/pub/irs-pdf/p502.pdf. )


 

Most banks and some credit unions offer HSAs.  Usually, they are in the form of an interest bearing checking account.  There may be some fees involved with these accounts, so be sure to shop around.
 

SO HOW EXACTLY DOES AN HDHP AND HSA HELP CONTROL MY HEALTH CARE COSTS?
 

If you are an owner paying premiums for your group plan, you will most certainly realize a significant cost savings for both you and your employees.  A HDHP/HSA opens the door to begin a discussion with your employees about living a more healthy life and managing personal finances to their advantage.  You may be able to use some of your cost savings to provide matching funds for your employees’ HSAs.  
 

For individuals, your premiums will also be significantly lower.  Because of the high deductibles (usually $2000 -$5000) associated with HDHPs, you will be paying 100% for most of your health care until your deductible is met.  This provides a major incentive to think twice about procedures, prescription drugs, and other medical services for which you’ll be paying.  It gives you a very good reason to have conversations with your doctor and other health care providers that might go something like this: 
 

  •  Why is the test necessary?  Is there a less expensive alternative?  What are the risks?
  • Is this drug necessary?    If a drug is necessary, please prescribe a generic drug.
  • What diet or lifestyle changes can I make to get well?
  • What is the cost of this procedure?


An HDHP provides an incentive to: 

  • Negotiate, when possible, the costs of certain services.  
  • Research services and service providers to find the best options to meet your specific needs at a reasonable cost. 
  • Take better care of yourself.  In the U.S., 60 to 70% of our health problems are due to lifestyle choices.  

 

The bottom line is that an HDHP and HSA put you in the driver’s seat.  You can begin to take control of your health care costs.  You may find that along with saving money and doing your part to help control costs, you may also be healthier.  
 

Have a conversation with your broker about HDHPs and HSAs.  She can help you determine if this new concept in health coverage is right for you. 

 

Lori Gregg-Fernandez
Fernandez Associates Insurance
www.faispokane.com 
© 2010 Fernandez Associates Insurance