What is a High Deductible Health Plan with HSA and Is it for You?
Last week I talked about Navigating 
the Health Insurance Waters as a self-employed individual. While the waters may never totally be clear or calm I am at least moving toward some clarity for myself (at least for now). In the process I spent a lot of time attempting to understand a relatively newer form of insurance that seems to be gaining in popularity, the High Deductible Health Plan (HDHP) with Health Savings Account (HSA).
If you are new to this conversation like I was just a few weeks ago, you might be asking, what the heck is a High Deductible Health Plan and HSA? They are actually two different things, but work in conjunction. Here is the cliff notes version to what’s what.
What is a High Deductible Health Plan?
Here’s a nice summary from Tricia at Wise Geek:
A high deductible health plan, often called consumer driven insurance, is a health plan with lower premiums and a higher deductible for major care, like a hospitalization or surgery. At the same time someone enrolls in a high deductible plan, he or she may also need to enroll in a health savings account (HSA). Generally, the person may put up to the amount of the deductible from income into this account, and the money is not taxed. Deductibles vary from as low as 1000 US dollars (USD) for an individual, to several thousand USD for family or couple coverage.
Basically it is health insurance that covers you for unusual and catastrophic illness and injury. What that means is, don’t expect to see any money or co-pays when you do your usual yearly thing – annual exams, yearly tests, trip to the doctor for the flu, etc. But, if you have an unexpected situation in any given year or acquire a chronic or acute condition (major injury, cancer, heart disease, sudden hospitalization or surgeries) you are covered. Essentially you are using insurance for its original intent – to protect yourself against major financial woes.
What is a Health Savings Account (HSA)?
A HSA is a tax advantaged savings plan which can be used for allowable health related expenses. Think of it as a mini short-term IRA for health expenses. Not just anyone can open one, however. First your HDHP must qualify and then you are limited to a maximum amount of annual contributions into the HSA. For 2008 these IRS requirements look like (Source: Benefits Alert):
Employees with self-only coverage under high-deductible health plans can contribute up to $2,900. The minimum annual deductible for a high-deductible health plan is not less than $1,100. Annual maximum out-of-pocket expenses (i.e., deductibles, co-payments, etc.) can’t exceed $5,600.
Employees with family coverage under high-deductible health plans can contribute up to $5,800. The minimum annual deductible for a high-deductible health plan is not less than $2,200. Annual maximum out-of-pocket expenses (i.e., deductibles, co-payments, etc.) can’t exceed $11,200.
So why are these becoming so popular now? Essentially the health care crisis that exists in this country is part of the driving force. The exponentially increasing costs of health care coupled with the lack of universal health care are simply creating an environment of desperate need for health care reform. These plans are one attempt to help bridge that gap in the meantime while the politicians and big pharma and medical folks battle it out. Let’s hope the changing of the guard in November coupled with more awareness of the health care woes from vehicles like the movie Sicko will help.
People are dissatisfied and at the mercy of the insurance companies that hold the power. According to a recent Gallup Poll (Source: Everyday Citizen):
A mid-November Gallup poll found that the public is more dissatisfied than ever with out-of-control health care costs. An overwhelming 81 percent said they are dissatisfied with the cost of health care in this country, the highest figure recorded on this question since Gallup first started asking it in 2001.
For now, though, people remain uninsured or insured but unsure of what truly IS covered at an alarming rate. Pam Pohly shares:
More and more American workers are losing their health coverage in the workplace as employers increasingly refuse to offer it. The Americans most likely to go without insurance now are those earning less than $46,650 a year and the majority of these are fully employed. Most Americans don’t buy health insurance if they don’t get it at work, regardless of how much they earn.
Four out of five of “uninsured” Americans are employed. Either they are not being offered group health insurance through their employer (the most prevalent problem) or the premiums offered through their employers are priced higher than these employees can afford (this is the smaller group).
In the same article Pam emphasizes that it is important to remember:
Remember, all Americans are harmed by this crisis. Even those that are insured are struggling to pay for their health care – and many of these are facing home foreclosures and bankruptcies due to their cost of medical care.
Part of the problem and solution lies in the answer to the question “What is driving the popularity of these plans for both employers and self-employed? ” According to an article at the World Health Care Blog:
The current popularity of “Consumer-Directed Health Plans”, with high deductibles and spending accounts may be due simply to their clear cost-shifting effects and demonstrated effects on reducing health care/insurance spending. The idea is simple enough to be simplistic – give consumers more skin in the game, and they will not demand unnecessary or wasteful medical or hospital care, and they will take better care of their own health.
Fundamentally this is sound, but as I learned last week while talking with my insurance broker, this shifting of cost and mindset doesn’t always work as planned. You see, with a HDHP you know going in that you have to pay the full cost of your doctor’s visits and medical care up to that high deductible limit (which starts at $1100 for an individual and $2200 for a family). Many people buy into these plans but then choose to forego medical care because they don’t want to pay for it (i.e. pay out of pocket up to the deductible). They are used to a co-pay scenario where taking the kids to the doctor is a $10-30 affair, not double or triple that (depending on prescriptions). Psychologically (or maybe even financially) they cannot make the shift. This is NOT a solution to any problem. It just goes to show how broke the system and our mindset and ability to care for ourselves really are.
Have you used a HDHP or HSA? How have you managed the mindset shift involved with this type of healthcare? What positive experiences and/or horror stories can you share? I invite you to continue the conversation in the comments…
Paula Gregorowicz is the Comfortable in Your Own Skin(tm) Coach and you can learn more at her website www.thepaulagcompany.com and blog www.coaching4lesbians.com .
HSA for America is who I used. This company was a good source of information when I was doing my research on HSA’s. I found them with google. There were a lot more plans available out there than I thought but the advisor I talked to help me narrow down my search to a few different plans. He also answered ALOT of my questions (and boy did I have them). They sent me quite a bit of email over the two week period as I was mulling over my decision but many of the emails were actaully informative. I eneded up choosing a Humana plan that gave some preventative care benefits that didn’t require me spending any of my HSA money on and the plan has good coverages in my area as well as most of the doctors accepted their network. After getting my insurane plan in force (this took almost 3 weeks) the same advisor (Mark) followed up with me and helped me decide on an HSA Administrator. I ended up picking a company called HSA Bank since they had some good investement options and had a tie in to TD Ameritrade which I already use for my IRA and another account. So far so good and I am looking forward to watching my money grow in that account. Has anyone else used the HSA for America folks?
I guess I should also mention that our family is in very good health and we really only go to the doctor for checkups and such. Our monthly premium was cut by well over 50%, but we did choose one of the higher deductible options. We were also offered some accident supplemental insurance but I turned taht down since we fully funded our account immediately and plan to do so every year.
I would be interested in what others have say about their HSA”s and what the future holds for these type of plans. Everything I read and have been told leads me to believe that these plans are not going anywhere, but it is an election year!
-PT
I did the high deductible option through my employer last year, and unless I am in a position where that’s all I can afford, I won’t do it again. I also used an FSA, which I fully funded, so theoretically, the money came back to me.
The family deductibles were confusing, the cash flow issues were stressful, and I’m still fighting with the insurance company over an $813 bill for tests in July.
This year, I switched to the EPO. Fewer choices, more expensive by payroll deduction, but far less out of pocket.
For two years now, I kept my enrollment in HDHP plan through my employer. With HDHP you have options to open a HSA account with banks offering this type of account or the company’s designated bank. Of course I chose the one with less hassle and the setting it up is free. My employer started us with $200 into our HSA account through direct payroll deposit and every month I set up an automatic deduction from my paycheck to my HSA account up to $2,900.00. (What a great way to save money and taxes.) The good thing about HSA is you can roll over whatever is left in your HSA account compared to FSA which you will forfeit if you don’t use it all within the allocated fiscal year.
Before enrolling in HDHP, my health premium for employee only was $55.00 per pay period but now my health premium for employee only is $25.00. If my math is correct, that is 45 percent less from what I started with.
As a gay male in my late 20’s, non-smoker, stay active and eat healthy. HDHP works only if you are healthy, active lifestyle and it also helps you make conscientious decision to visit doctors, hospitals, dentists or whatever it maybe. To me this plan is cost efficient, less hassle and made me better taking care of myself.
I have a HDHP, $10,000 family deductible, and love it! We don’t pay for services when rendered. Instead, we pay the rate that the insurance company negotiated with the medical service provider.
Universal health care will not solve the fundamental problems with our health system. Instead, the non-free market friction needs to be removed. Besides health care, what goods or services do you purchase where you neither know the cost nor the quality beforehand? Our core needs are:
1. Make medical service prices and quality transparent to the market.
2. Eliminate the tax-advantaged health insurance benefits provided by employers – make all insurance purchases with after tax dollars.
3. Allow consumers to buy insurance from any provider from any state.
4. Provide “health insurance” stamps to those consumers whose income falls below a government determined threshold (similar idea as with food stamps).
Finally, we need to start a national discussion on health care access. Is health care a service that should be available equally to all regardless of ability to pay? If you answer yes, then why doesn’t housing and food fall into the same category?
I have had an HSA for over 2 years now and I really love it! It works for me because I am young and healthy, which is really who the HSA is geared for.
These are fundamentally flawed.
Discouraging routine medical care through the market is not a way to reduce costs, it’s a way to increase costs. This is why HMOs encourage primary care visits and require them to access higher cost services — because regular contact with a physician reduces overall costs by treating problems in early stages when they are less expensive to treat. Consumer Driven Health discourages this type of behavior and encourages letting conditions get out of hand to the point where insurance takes over.
Most importantly however, consumer behavior works very well for the distribution of optional consumer goods, but health care is not an optional purchase.
Let’s look at HIV infection. Everyone is quite aware that HIV drugs are expensive. So consumer driven health would solve this by creating a marketplace. Consumers would see the cost as too great and simply not purchase. After a generation chose not to purchase these drugs, pharmaceutical companies would be forced to lower prices, find more efficient solutions, etc.
The problem here is that obtaining that result relies on a generation of HIV infected individuals deciding that death is preferable to being overcharged. The difficulty for the advocates of consumer driven health is in finding this large group of consumers willing to engage in behavior that is de facto suicide in order to nudge the marketplace.
Simply put, death is not a viable consumer choice. And life or death advanced and long term medical treatment is where the real costs in the system lie.
If one casts a rather jaded eye towards consumer driven health, including looking at its most ardent advocate, Newt Gingrich’s think tank, and looking at the one indisputable benefit that it lowers costs for corporations, one might suspect that the real aim here is not to lower health care costs, but simply to produce a huge windfall for corporate America.
I will second the other healthy younger folks. I just started working last year and enrolled in EPO to do a few check ups since I have not been to a doctor in 4-5 years. This year I switched to HDHP and opened HSA. The only issue I am having is that our payroll system is not set up to process pretax contributionss to an HSA other than the one offered at work. So my plan is to put the money in there but then transfer it to Fidelity once they open their HSA for everyone.
Thanks for this good discussion of HSAs and other options for the self-employed. I’ve posted a link to this at my Sunday round-up.
Interesting point Kathy. I wonder though – it seems it is only fundamentally flawed if you choose NOT to do routine care. Under these plans, it simply means you are responsible for your routine care, it doesn’t say “don’t go do preventative care”. Whereas my experience with HMO is that you can have a preventative visit but “only with whom and how we the powers that be think that should look”. Having had a few bad Dr experiences in the past (after all someone had to be LAST in their class, right?)…I think choice is most important both in who I see and how I choose to be treated/follow preventative care.
I appreciate all your comments… and these of course are only my personal experiences and opinions! But I wanted to share what came up for me as I read your thoughtful response.
Here’s to hopes for a better system for all , whatever that might look like!
The HSA I had covered some preventive care–various kinds of routine check-ups, for example, cost no more than a co-pay.
At the time I had the HSA, I was very lucky with my health, which was (and still is) very good. If you’re generally healthy AND luckier than Zeus, you’ll do just fine with an HSA. Problem is, most of us do not dwell on Mt. Olympus and few of us are immortal. Sooner or later, each of us WILL get sick, and most of us will get sick (expensively) unto death.
My HSA covered all costs 100%, no deductible no questions asked any practitioner I chose, once I exceeded the high deductible. That, I thought, was potentially useful.
But: what happens if you contract a disease or are seriously injured near the end of a year? Let’s say you get sick in December. You have surgery that instantly exhausts a $2,500 deductible. Because you are not allowed to deposit $2,500/year and you’re a relatively new customer, the bill consumes most or all of the savings in your HSA. January begins a new year. So, say, come February you have some more expensive procedures. These quickly exceed $2,500. You don’t have that much left in your HSA, and so to keep from being carted off to debtor’s prison, you pay it out of pocket. Meanwhile, you have to keep contributing monthly to the HSA, screw you very much. Does the HSA reimburse you (with YOUR OWN MONEY) to cover the February bills? Maybe so, but somehow it doesn’t look like a smokin’ deal.
I abandoned my HSA after my employer finally started offering some decent health insurance options. And indeed, one Christmas I spent the holiday in the hospital enjoying an appendectomy, to the tune of $20,000. The new insurance plan covered ALL of it–I had to pay $75 for the emergency room co-pay. If I’d still been enrolled in the HSA, I would have had to pony up $2,500, and then come January I would have had to pay more for any further medical bills that arose.
Another issue I had with the HSA is that you have very, very few choices of financial institutions to host your “savings.” All of them have OUTRAGEOUS charges. And once the money is in one of those accounts, it’s in there forever, or at least until you find ways to use it up on glasses and dental work and whatever other miscellany you can imagine to consume it. After you’ve quit the HSA plan, you’re not allowed to move the money anywhere else. It took me almost two years to get my money out of the HSA account, and during all that time I was being nicked $10 or $15 a month in service fees.
But: if my employer, a state government, came up with an HSA plan that did not rip me off and ensured that long-term costs of a single illness were covered from year year to year, as long as I was being treated for that illness, I would consider it. An HSA does allow you, IF YOUR HEALTH IS GOOD, to build savings that come back to you when you become Medicare-eligible. If you’re lucky.
I’ve had an HSA policy for quite a few years along with an account at HSA Bank. Recently transferred the account from HSA Bank to Exante and learned that HSA Bank has come up with new ways to screw their customers. First they charge you $25 to close the account, even if you’ve been there for years. Then, they close your account and sit on your money for 5 business days before sending it to the new trustee without paying you interest. Worse still, they don’t pay you any interest for the month in which you close the account. So if you close it around the end of the month, you lose a full month’s interest. When I called them and asked about all this stuff, they politely explained that it’s all disclosed on page 6 of their fine print account policies! I’d stay away from HSA Bank – anyone who would screw their customers that bad should be out of business!
This year I investigated a high deductible plan offered by my husband’s employer. In order to project expenses and compare plans, I created a hypothetical medical situation and called the customer service number to get a ballpark idea of what physician, lab, rehab, etc. charges would be if I chose the high deductible plan. I was told that I could determine these charges with the providers I chose only at the time of service. The customer service representative also told me that in the three years she had been answering questions about the plan that I was the only person who had ever inquired about what my out-of-pocket costs might be. It was clear that if I chose the high deductible policy and required more than a couple of physician visits, I would be paying more in the long run than for the PPO and HMO plans offered. It was also clear that this plan not only represented cost shifting to the patient but also increased reimbursement to the providers. This was SWEET–the insurer won, the providers won, and the patient lost. Consumer driven health care is all about maximizing fees for providers without penalizing insurers. True consumer-driven health care can arise only when insurance is completely eliminated and providers (hospitals, physicians, nursing homes, outpatient surgery and diagnostic centers, etc.) cannot lien your assets or garnish your wages for their “reasonable and customary fees” that are 60-80 percent higher than the reimbursement they receive from insurance companies. The three biggest problems in health care today are fragmentation of services, hospital monopolies that restrict competition and innovation and the fact that charges are not market driven. The insurer reimburses the provider as little as possible in order to earn a huge profit on premiums. The provider’s reasonable and customary charges are paid only by the hapless uninsured patient–those patients with insurance are charged much, much less. So what are the provider’s services actually worth? What will the market bear? No one knows because neither what insurer’s pay nor what providers want in terms of reimbursement reflect what consumers are willing and able to pay in a free market.
Also, there are a couple ways to get the tax benefits of a Health Savings Account.
The easiest way is to have the savings for your HSA come straight out of your paycheck; before taxes are taken out of your income. It looks like many of you who commented here do it this way.
But if you can’t take money directly out of your paycheck for some reason, you can still get an HSA’s tax advantages with an “above-the-line” deduction. All you have to do is subtract what you saved in your HSA from your taxable income on your next tax return. For example, if you save $2,000 in an HSA, you can take off $2,000 from your taxable income.
A little more hassle, true, but it’s good to know you can still get the tax benefits.