Amid rising hmedical insurance costs and the debate over reforming/replacing the ACA, it’s easy to miss that an alternative already exists and needs to be protected in any health care reform plan. As Obamacare has driven up the cost of insurance premiums, a growing number of consumers and employers have turned toward high-deductible health plans (HDHPs), often known as “catastrophic health insurance.”
These plans feature lower-than-average premiums in exchange for higher-than-average deductibles, and many on the market today are paired with tax-advantaged health savings accounts (HSAs).
This is as opposed to some small group and individual market policies where you pay high premiums, but you also have a high deductible as a cost-savings means.
Brad and I used to have one of these in the individual market before I accepted a job with medical insurance that covers the family … for a price. There were no attached Health Savings Accounts available in those days and we only satisfied the deductible when we had our daughter through midwife delivery. Prenatal and labor and delivery just topped over the deductible and because we had chosen a low-cost (and much healthier option for childbirth) the insurance company reimbursed the entire bill … a nice baby-warming gift.
We looked into it when Obamacare drove up my family premiums by more than 50% over two years, but we couldn’t find one that covered our family … only individuals. I’ve heard that’s changed, but we don’t need the coverage currently.
Under a high-deductible health plan, you pay for all your medical expenses, except for qualified preventive care (which the ACA made mandatory), up to the annual deductible. After that, some plans pay 100 percent of your covered medical expenses. Others initially pay a share of your medical bills (maybe 80 percent) before paying 100 percent when you reach an out-of-pocket maximum.
These plans are sometimes referred to as catastrophic health insurance plans, but the name is not exactly accurate. Under health care reform, the plans must cover 100 percent of preventive care, even before you pay the deductible. Additionally, many of the plans cover a full range of health care services – not just hospital and emergency medical costs you might associate with catastrophic care. So, if you’re someone with a chronic disorder, you still might use health insurance coverage for regular doctors’ visits after the deductible is satisfied.
But how do you pay for the medical care you need before the deductible is satisfied? Often the HDHP is paired with a tax-advantaged Health Savings Account. HSA-qualified, high-deductible health plans have been covered by federal law since 2004. These plans are coupled with a health savings account that lets you set aside pre-tax money to use for medical care today. In recent years, these plans have been reformed to allow them to roll over from year to year and now you can even pass them to your heirs.
Consumers shopping for affordable individual health insurance were the first to gravitate toward HSA-eligible plans, followed by small employers, but larger businesses are now looking at them as well. In the latest data, nearly 17.4 million Americans were covered by “health savings account/high-deductible health plans” in 2014, which was a 12 percent increase over 2013. Since 2011, HSA plans have grown on average 15 percent annually.
Currently, not all high-deductible health plans can be paired with an HSA. To qualify for HDHP status in 2016, the plan must have a deductible of at least $1,300 for an individual and $2,600 for a family. Out-of-pocket maximums can be no more than $6,550 for an individual and $13,100 for a family. My former small-group employer has employees paying $1000 a month for an “ordinary” insurance plan that has similar parameters, so they wouldn’t be losing much with an HDHP.
You can contribute up to $3,350 per year in pre-tax dollars to an HSA as an individual or up to $6,750 as a family. You can save an additional $1,000 in the account if you’re 55 or older.
The money in the account grows tax-free, and in some cases companies that service the accounts provide investment options, such as mutual funds to promote further savings growth.
When you withdraw the funds, you don’t have to pay taxes so long as the withdrawals you take are for qualified medical expenses, such as the HDHP’s deductible or medical costs not covered under the plan, including dental and vision care. You can even save for long-term care not covered by Medicare.
An HSA account is portable. Even if you switch to a different type of health plan or change employers, the money is still yours to spend on health care.
They’re a no-brainer for the young and healthy, but Rick believes they’re well-suited for all age- and health groups. There are currently 20 million active HSA accounts in the US, but expansion plans could increase the number significantly.
“I believe everyone should be in charge of their own health care decisions. These plans mean that consumers care how much medical care costs. It incentivizes them to make informed decisions. Last year, my son chose to forego expensive surgery in favor of physical therapy to correct an orthopedic injury. He’s back doing stupid athletic things in less time than the recovery from surgery would have been. He’s less likely to hurt himself in the future because he’s learned a great deal about body mechanics. If he’d been covered by “full-coverage” insurance, he would have been less conscious of the costs and asked fewer questions about the alternatives. Yes, he cost a surgeon a lot of money, but that money went to a physical therapist, a gym membership, and whatever investments his HSA is attached to. Yes, Lela, I read “The Broken Window” by Bastiat when you suggested it and I can apply it.” Rick (a doctor)
Rick supports the government funding HSA’s for lower-income people, paired with a HDHP, as an alternative to the one-size-fits-all (but it doesn’t) current medical insurance scheme. It would save the government money in the long run and it would force people to pay attention to their own medical care decisions and by the time someone turned 18 and was responsible for their own health care, they’d have plenty of money in the account to act as a cushion for any future medical expenses.