Health savings accounts are coming up on a milestone date — in December it will be 10 years they have been around.
In September 2004 there were 438,000 people enrolled. That grew to 6.1 million in 2008 and most recently 13.5 million enrolled in 2012. Although there is a major increase in enrollment, many still feel uneasy when talk turns to a high deductible health plan.
One reason people tend to shy away from health savings accounts is because of the “high deductible.” Allowable deductibles are single $1,200 to $6,050 and family $2,400 to $12,000. According to the Kaiser Family Foundation, in 2012 the average single deductible on a qualified high deductible health plan in small business was $2,086 annually. Typically, the family deductible is twice the single; approximately $4,000 to $4,500. Compare that to a single deductible for a “copay” plan of $1,500 and $3,000 for family. Not much difference, but the consumer is responsible for all contracted charges being applied toward the deductible. This is the second reason why people are fearful of an HSA.
Health savings accounts should be compared to the copay plan out of pocket maximum. O.P.M. is the maximum exposure a plan has after deductible, and often not including copays. Typically, deductible is met, then there is coinsurance or cost sharing until the O.P.M is met. Example: A $2,500 deductible 20 percent coinsurance plan to O.P.M to $5,000. Therefore, worst case scenario is $5,000. (Except for copays — they are always required) So, break an ankle — ER visit, surgery, physical therapy — be assured the $5,000 will be met. Under the high deductible health plan, the deductible is $2,500 and it is also the O.P.M. Once you meet the deductible, there is no more cost for medical or prescriptions for the rest of the calendar year. Although you may hit the deductible “quicker,” once it is met there is no more “risk” cost.
Along with the qualified high deductible health plan, an insured opens a savings account to pay for expenses incurred in the medical plan, dental or vision expenses. The federal government sets a maximum contribution, but no minimum. When you do put money in the account, it goes in, grows and can be used without paying state or federal tax. Best of all, there is no “use it or lose it” provision. It can continue to grow to age 65.
Overall, the health savings account design is a win-win-win. Lower premiums, tax free accumulation in the savings account and, in most cases, reduced risk.
If you have questions or want to discuss strategy for implementing an HSA, visit me at 5335 Merle Hay Road, Suite 2 or at email@example.com.
Information provided by Janis Van Ahn, Health Insurance Advisor LLC, 5335 Merle Hay Road, Suite 2, Johnston, 515-225-9994, firstname.lastname@example.org.