Health Savings Account (HSA)

The Current Condition Of The Economy Is Affecting Health Insurance Choices
Most of us are struggling financially, since our economy has changed for the worse recently. People are losing their jobs or at least they are worried about it. There is no doubt that families and individuals have cut back their spending to more sustainable levels. In short, people are looking for bargains in just about everything they buy – including health insurance plans.

What is happening in the health care business?
In 2009, approximately sixty-two percent of the plans being sold by agents in North Carolina, are health savings account plans Blue Cross and Blue Shield of North Carolina has a plan called Blue Options HSA. The Blue Options HSA plan costs so much less than the traditional copay plan that it is being chosen more frequently. This was not true in previous years.

Why are people choosing health savings account type plans?

Lower Premiums:
The monthly premiums on HSA type plans are considerably less than the premiums you have to pay for the copay type plans. When people make quick comparisions, they don’t see the obvious. Most people make a mistake when they compare premiums on HSA type plans with copay plans.

They make the mistake of comparing deductible amounts between the plans in question. They make the deductibles approximately equal thinking that they are making a fair comparison — they are not.

Do The Comparison Properly:
To make a proper comparison, you have to consider the maximum out-of-pocket risk. What does that mean? Let’s take an example: If you have to be hospitalized to have your gall bladder removed, you will have to pay your deductible. Most people will understand that. However, there is another factor that most people don’t know about, or have forgotten about. It is called coninsurance because you and the company both co-insure.

Coinsurance Is Important To Consider
Coinsurance is the amount that you have to pay, in addition to your deductible. So, to illustrate, consider the gall bladder operation example. You must pay your deductible AND your coinsurance.

Assume that you have a $2500 deductible plan with a 70/30 coinsurance. The 70/30 describes the coinsurance. It means that you will have to pay 30%, and the insurance company will have to pay 70% of the first $10,000 of expenses. In actual numbers, this means that the patient will be out-of-pocket $2,500 plus ($10,000 X .30 = $3,000) or a total of $5,500.

I know that I have lost some people with the previous paragraph, but suffice it to say that with the copay plan, you will be out-of-pocket $5,500 – not $2,500.   After the deductible and the coinsurance portions are paid, the insurance company will pay one-hundred percent of the balance of the covered expenses.

A Valid Comparison:
Now getting back to the comparison. If you compare a $2,500 70/30 copay plan to an HSA type plan, you need to compare it to the $5,000 deductible 100% HSA plan. Don’t compare it to the $2,700 100% deductible plan HSA type plan — the risks are not approximately equal there.

Out-of-pocket expenses need to be similar to make the comparison proper. If you do the comparison properly, you will see that the premium savings are in the range of 50%.  The HSA type plan is always the winner.

Catastrophic Coverage:
Most HSA plans you will find are actually rather simple. You pay for the day-to-day medical expenses like doctor visits, and medications, (at a discounted, negotiated price),  but if you have to be hospitalized, or have out-patient surgery, you have to pay your deductible and any coinsurance.  Then your financial obligations are complete.

Tax savings:
Once you have the HSA type plan, you can go to your local bank and open up the health savings account. Your HSA savings account needs to be used for qualified medical expenses. Examples of qualified medical expenses: over the counter cough medicine, doctor visits, prescription medications, chiropractors, acupuncture treatments, dental expenses, and vision expenses. This is an incomplete list…generally, any medically related expense is qualified. Here is a list of Qualified Medical Expenses for HSA plans. Your contributions are after-tax, but when you do your income taxes, they become pre-tax. You can consider that you are paying for your medical expenses at half the normal price.

What Else Does The Catastrophic (HSA) Plan Have To Offer?

• Annual physical
• Access to medical providers
• Lower monthly premiums
• Savings on taxes

Summary:
You must work with a helpful, knowledgeable health insurance agent. Ask him to help you make the comparisons. A good insurance agent will help you by comparing plans based on out-of-pocket risks.

It doesn’t matter which insurance company you choose, they will all have an HSA type plan — sometimes also called a high deductible health plan.

Once you have really understood the concept, you will be ready to purchase the least expensive, affordable type of health insurance plan available — the Health Savings Account (HSA) type plan.