Health Savings Accounts are a good option for your health plan
If you’re looking for a medical plan and are shocked by what a plan costs, consider a qualified High Deductible plan with a Health Savings Account (HSA). At first pass it may look more expensive because you pay all your eligible expenses before the plan starts to pay and most people really like to pay that $30 copay for doctor’s visits and prescriptions. However, when you compare the plan costs, you may find this actually a better option for you and your family.
First, add the deductible for each plan you are considering and then add the coinsurance amount you are required to pay AFTER the deductible. 80%/20% and 70%/30% are common IN NETWORK examples of coinsurance where the carrier pays the higher percentage and you pay the lower percentage UP TO a maximum out of pocket amount.
Cost of a PPO plan (The Reality)
You have a Preferred Provider Plan (PPO) where you go to the doctor and pay copay for doctor visits. The individual deductible is $3,500 and the individual coinsurance maximum
for an individual is $3,000. You’re total cost if you are hospitalized, have outpatient surgery would be $6,500. You then take your monthly premium and multiply it by 12 and add this to the $6,500. Let’s say your monthly premium is $350/12 = $4,200. So now you know that in a year when something major occurs, you will have major medical expenses of $10,700. Please be aware that these costs explain what
occurs for an individual not a family.
Let’s compare High Deductible Health Plan with a monthly premium of $300 and a deductible of $2,700 and 100% coinsurance. This means that after $3,600 of premium and $2700 = $6,300 the carrier pays 100% of the cost for the remainder of the year. Before you get to excited you need to understand that YOU are responsible for the 100% of all medical expenses including prescriptions under this High Deductible Health Plan up to the deductible before this plan starts to pay for anything other than wellness. We like our co pays but here’s the good news. When you set up a qualified High Deductible plan, the government allows you to open a Health Savings Account (HSA) through a bank or the insurer carrier. IN 2012, you can put up to $3,100 for an individual and $6,250 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,100 for an individual and $7,250 for a family). THE BEAUTY OF THIS IS THAT ANYTHING YOU PUT INTO THE HSA is 100% tax deductible from gross income.
Don’t confuse an HSA with a Flexible Benefit Plan where you lose your money at the end of the each year. With an HSA, it’s your money and as it sits in your HSA, interest earnings accumulate tax-deferred similar to an Individual Retirement Account. At any time you can use the funds in the account to actually pay providers for a wide variety of medical expenses.
Wellness visits are covered 100% by the HSA so if you are a generally healthy individual and fund your HSA account on a monthly basis with let’s say $100, by the end of the year you would have $1,200. During the year you go to the doctor for a cold. You get a bill from the doctor’s office is $300. The charges are then discounted because this doctor has agreed to accept the insurer carrier’s negotiated fee and now the bill is $200. You write a check or use a credit card tied to your HSA and your insurance deductible is reduced by the insurer by that same $200. This process works for all medical & dental care whether hospitalization, prescriptions or doctors visits. At the end of the year, $1,000 is still in the account and is available for a wide variety of qualified expenses. http://www.irs.gov/pub/irs-pdf/p969.pdf
Next year you put $150 a month into your HSA account and again have no expenses. Now you have $2,800 in the account. Remember your deductible is $2700, so by year 2 you now have the money to reimburse yourself if you have a major medical problem. Since we paid $6300 ($2700 plus the premium), you actually saved money over the cost of the PPO plan because you get to take the tax deduction of the $2,700 off your
taxes. If your a small business owner, it’s also possible that you can deduct your medical expenses from your taxes as well.
If you’re NOT planning on funding your HSA and are only purchasing the HSA because it is less expensive BE CAREFUL. The HSA works best when you put the money aside to reimburse yourself otherwise that deductible is going to hurt!
Remember to set up the HSA immediately (even if you don’t think you will fund it) after you enroll in the High Deductible plan because if you have eligible claims before you set up the account they are NOT eligible to
be reimbursed. You may decide to fund the HSA with only $200. As long as you have the HSA set up, you can still write a check to the HSA after a big medical
expense account and deduct it from your gross earnings.
If you’re a conscientious saver, and your HSA builds up, amounts in your HSA can also be used to pay health insurance premiums when you’re between jobs, qualified long-term care premiums, Medicare premiums and out-of-pocket expenses and living expenses after age 65 (pay ordinary income taxes).
Of course, I am giving you a bird’s eye view on this and you need to consider moving to an HSA carefully. To educate yourself, you can go to www.hsacenter.com which offers a great deal of valuable information. You can also contact me if you have questions or are interested in purchasing a Qualified High Deductible plan.
The HSACenter.com website is presented as general information by United Healthcare’s Golden Rule Insurance Company.
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