A health savings account attached to a high deductible health plan just might be the prescription for increasing health insurance costs.
Health savings account shift the cost of everyday health care to the insured, rather than the insurance company. This is accomplished by the insured having a higher medical deductible (ranging from $1,150 to $5,000 for a single person & $2,300 to $10,000 for a family).
The idea (formally recognized as Consumer Driven Health Care) is, that consumers paying for office visits and prescriptions out of their own pockets will create an awareness of how much those things cost. The insured might be a little more cautious before they head off to the urgent care center for something that don’t necessarily need to go there for. On top of that, the hope is, the insured will question and negotiate with the medical provider when the provider orders tests and prescribes name brand drugs.
Because deductibles are high and there is little coverage before you meet your deductible, premiums for these plans can be very attractive. On top of that, health savings accounts allow the insured to contribute $3,000 of pre-tax money ($5,950 for a family), every year to the account. This money can be used to pay for surgeries, doctors visits, accidents, prescriptions and much more. Best of all, the money is tax free, the account is in the insureds control, and it’s not a “use it or lose it” account. The money rolls over from year to year.
To illustrate how a high deductible health plan in conjunction with a health savings account can change your families health insurance situation, take a look at the example below. The family in this example includes a 37 year old male, 33 year old female, and two kids, ages 7 and 5.
A Popular Health Insurance Plan -
- A local and well known insurance company
- $500 medical deductible
- $0 prescription deductible
- $15 & $25 office visits (no deductible payment required)
- 80% coverage after the deductible
- $3,500 stop loss (max out of pocket)
- $2,500,000 lifetime maximum benefit
- $596.00 monthly premium
A High Deductible Health Plan + a Health Savings Account -
- A solid insurance company who focuses on high deductible health plans
- $5,000 medical/prescription deductible
- $35 preventive care (annual physical) visit (no deductible payment required)
- 100% coverage after the deductible
- $5,000 stop loss (max out of pocket)
- $5,000,000 lifetime maximum benefit
- $151.00 monthly premium
It’s true that a family of four might have quite a few doctors visits each year and may end up paying quite a bit of out-of-pocket costs during the year. But, to make up for it, medical expenses are paid for with pre-tax monies and the family is saving $5,340 per year in annual premiums.
What is attractive about this, is that the insured has an opportunity to save a large portion of their premiums. With the $500 deductible plan, the family was paying out $7,152, guaranteed, whether they utilized the plan or not. Now, they are only paying out $1,812 in annual premiums. They have an opportunity to save a lot of money each year, as long as they don’t over-utilize their plan.
Because the insured is on the hook for more medical costs, high deductible health plans usually make a lot of sense for individuals and families that are healthy, or don’t utilize their plan much, and don’t have a lot of expensive prescriptions.
An individual or family that has prescription costs, multiple office visits, and other medical expenses throughout each year may want to consider staying on a plan with more benefits up front.
To learn more about Health Savings Accounts, visit the United States Department of the Treasury – Office of Public Affairs – HSA’s.
*All dollar figures above (contributions, deductibles, and example plan premiums) are for the year 2009.
