With the costs of health care rising dramatically every year, both companies and individuals are trying to find ways to lessen the financial pain. One option is a (HDHP) coupled with a Health Savings Account (HSA).
Many of you may already have this option, or your company is rolling this out in the near future. It can help cut costs and boost savings, but it isn’t right for everyone. There are a few facts to consider before deciding what is best for your situation.
HDHP
A High Deductible Health Plan is exactly what it reads like: An insurance plan with a high deductible but a very low premium. It is available to anyone whether you are self-employed or an employee.
Upside: Saving money is a priority for most when it comes to insurance. The money you save by having a low deductible can help you pay off debt, or you can add it to your Health Savings Account.
Downside: High deductible means higher out-of-pocket expenses. For 2008, the minimum deductible for one insured is $1,100 and the maximum is $5,600. For families it is much larger with a minimum of $2,200 and a maximum of $11,200. Quite a bit more than you pay with a regular, low-deductible insurance plan.
Any amount up to that deductible is your responsibility, and there is little to no savings in price as with other plans, though you save money if you use a provider within your plan’s network, if your plan participates in one.
If you have prescriptions, be prepared to pay much more than you would with a traditional plan that just requires a co-pay.
HSA
To be eligible for a Health Savings Account, you must be covered by an HDHP and must not be covered by other health insurance that is not an HDHP. Exceptions to this would be dental, vision, disability and long-term care insurance.
The Health Savings Account offsets the HDHP with tax-free money contributed by you, and possibly your company. You add money to this savings account to save for any of the higher up-front medical expenses like doctor visits, prescriptions, etc. The money you save in this account is tax free if used for approved medical expenses.
The money stays with you and rolls over every year. So the healthier you are the more interest you will earn and the more money you will save. Some employers deposit money into your HSA as well to help with medical expenses.
Upside: You are more in control of your money and medical future. Your money earns interest and rolls over every year. A healthy individual with very little in the way of medical expenses can amass quite a sum of money.
You don’t incur taxes as long as you use the money for medical expenses. After age 65, if you use the money for something else, you just pay the tax, but not the 10% penalty. Think of it as another way to invest in yourself and your future.
Many plans come with a special debit card tied to your HSA account, so it’s easy to pay and cuts down on transfers and paperwork.
Downside: There are limits on contributions to your HSA. For 2008, an individual could contribute $2,900, and a family could contribute up to $5,800.
Taxes apply for any withdrawal from an HSA for non-medical expenses, along with an additional 10% penalty. Once you reach age 65, there is no penalty, but you still have to pay taxes for any non-medical withdrawal.
Moreover, with more control comes more responsibility. Unfortunately, people aren’t always responsible when it comes to saving. If you or a member of your household becomes extremely ill, becomes pregnant, or has an accident, and you haven’t placed enough in your HSA, it may be a longer way to the end of that high deductible than you thought. If you have trouble saving, or think you might not be able to put enough money in to cover the high deductible (especially if you are just starting with your HSA) you may want to look elsewhere.
There is no clear, yes-or-no answer. You have to decide. This can be a viable combo for employers looking to avoid rising health care costs, and it can provide a low-cost insurance option for healthy individuals and families.
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I would have completely agreed with your advice until recently. And, in theory, still do. But there are some other things to consider when making the decision to purchase high deductible HSA compatible health insurance. It is not a panacea if you have unexpected health problems over a prolonged period of time.
Here is my story with Assurant Health – My family has had a high deductible HSA with Assurant Health from March of 2000 to September of 2008. When we started with 2 children and 2 adults covered, the quarterly premium was $892 and the calendar year family deductible was $4,500; total OOP in or out of network was $5,500.
By last September (2007), our premiums had increased to $2,615 per quarter with the same deductible. An increase of nearly 300% in seven years!!
In June we received a letter informing us that Assurant Health was discontinuing our policy and replacing it with one of their new products. When we received the details of the new policy a month ago, we learned that the quarterly premium (now for 2 adults and 1 dependent) will be $3022.32 ($12,088/year) and the deductible will increase to $5,700; maximum OOP in-network will be $10,700; OOP out-of-network will be $18,700. AND, to add insult to injury, even though we have met our deductible of $4,500 for 2008, as of 9/1/08, Assurant tells us that we will have to come up with another $1,200 in deductibles before they will cover anything
As with any type of health insurance, I fully believe you should use a licensed agent to purchase insurance. There is no cost for you to do so. Agents are paid by the insurance company, so whether you buy insurance direct or through an agent your premiums will not be any different.
An agent would have helped you the first year there was a price increase to move your family to a plan that is more appropriate that would not affect you the way you were affected.
This does not only happen with HDHP and HSA’s. Premium increases occur in every type of health insurance, this is why it is important to be doing business with an independent agent that is contracted with all the top carriers in your state.
I wanted to clarify that when dealing with an agent, you would not want to deal with an agent that only sells Assurant Health in your particular situation. In most states the top carriers are usually Assurant, Golden Rule, Humana, Aetna, etc. You need an agent that is INDEPENDENT and contracted with ALL carriers. Someone that will work for you instead of someone who only works for one company, because of course they are not going to offer alternatives because then they would not receive a paycheck if they told you another company had a better plan at a better cost.
Health insurance is something that should be reviewed once a year.
Peggy,
I don’t know what state you are in, what happened to you with Assurant sounds like it would be illegal in Illinois. In this state premiums aren’t allowed to increase for “high risk” customers anymore than they increase for healthy patients.
Look into the high risk pool in your state, if it has one. In Illinois you’d be eligible for the pool — its expensive, but nowhere near what you’re paying now.
For everyone, try to get a HDHP plan that has 100% coverage when you meet the deductible, stay away from Out of Pocket Maximums…they can often be increased on an individual basis unlike the premiums.
I.e. OOP will remain same for healthy customers but be increased for unhealthy customers.
Finally, after running the numbers with a HDHP that pays 100% after deductible is met I discovered that for people who are very sick the HDHP route is actually CHEAPER than normal insurance. If you are self employed you can use your HDHP with a Health Reimbursement Arrangement instead of an HSA and pay virtually everything with pre-tax dollars.
Health savings accounts when coupled with a high deductible health insurance coverage plan are a great hedge against catastrophic expenses for those who are comfortable paying for minor claims out of pocket.