The health insurance industry is very unique. When you compare it to other types of insurance, you will find that most insurances are based off of the catastrophe.
Your auto insurance does not cover new tires or oil changes. Your home owners insurance does not pay for a new paint job or if your oven breaks down.
Somehow, health insurance pays for doctor visits (new tires) and prescription drugs (oil changes). These two benefits are what add most of the cost to a health care plan.
With health insurance you pay for these benefits whether you use them or not.
This is why health savings accounts (H.S.A), make a lot of sense. The HSA is used in conjunction with a High Deductible Health Plan (HDHP). The deductible, as you might guess, is higher and only covers the doctor visits and prescriptions after you meet that deductible. It protects you from the catastrophic loss and kind of puts you in control of your health care dollars. They often times cost half as much as a co-pay plan would cost.
H.S.A plans were we created in Medicare legislation and signed in to law by President, George W. Bush, on December 8, 2003. They were originally called Medical Savings Accounts (MSA). They were designed by Senator Bill Archer, R-Texas.
Mr. Archer’s project was to reduce the cost of health insurance for the self-employed without sacrificing coverage for a major illness. Mr. Archer’s brilliant idea was to eliminate the part of the traditional health plan that cost the most money. These expensive benefits include doctor visit “co-pays” and outpatient prescription drug “co-pays”. Archer proposed to congress that if you eliminated these features from the health plan it was conceivable to cut your health premiums considerably. He was absolutely right!
Here is an Illinois example. A family of four with Blue Cross Blue Shield of Illinois parents in the Chicago Area 40 years old with two children $2500 deductible individual deductible $7500 family deductible is $683 per month. That plan has co-pays, Rx coverage and an annual out of pocket maximum of $9000 ( 80% paid by insurance 20% paid by insured until they have spent $9000). That is significant because it is a high out of pocket maximum plus your premiums. And how often do you see a doctor in a given year?
Now let’s look at the same situation, same carrier with an H.S.A plan. This we will choose a $5200 family deductible. This plan is 100% coverage after the deductible, so my out of pocket maximum is lower as well. It is better coverage for the big, more catastrophic things that can happen. This plans premium $473.
It costs this family $200 more per month for the privilege of having a co-pay and prescription coverage. Now, if you are on some significant medications, or go to the doctor twice per month, these plans might not be right, but I do not believe that most Americans do go to the doctor that frequently.
Then, if you choose too you can, the $200 per month savings and set up the “saving account” portion of the plan in which you can fund it like an IRA, in which money you put it tax deferred and goes out tax free if you use it for medical expenses. In two years, you would have $4800 saved in your account. That is almost enough to cover your entire deductible.
In 2012, the maximum you can put into the savings account is $3100 for an individual and $6250 for a family. If you are over age 55 you can put an additional $1000 per year into the account as a “catch up” contribution.
You can pull this money from your account, for qualified medical expenses if you should incur them through the year. Unlike the FLEX SPENDING ACCOUNT (FSA) that many have had through their employment, the money you put into the account can carry over from year to year. So if you were to put $5000 in your account this year and you do not use any of it, you have $5000 to start next year. Remember, most or all of this money is money that you would have given to the insurance company for the privilege of having a “co-pay”.
Eric Wilson is the President of I Sell Health, Inc. A Chicago area insurance agency. He can be reached toll free at 888-448-5370.