HSAs

We've just switched insurance companies at work. The new insurance company we are going with (I am not going to name any names, because this is not pertinent to to the topic) has been shoving High Deductible Health Savings Accounts (HSA) down our throats for the past week. This is a relatively new form of insurance that the US government has been pushing to regulate inflation of healthcare costs.

With this type of insurance, you pay a lower premium to the insurance company, but the deductible is very high, in our case, individual deductible was $2,500 and $5,000 for a family (legally it has to be upwards of $1,100 or $2,200 for a family). Insurance does not kick in until you have covered your deductible, so essentially you have to pay everything out of pocket until you cover your deductible. Unlike standard insurance, everything that your insurance covers, including prescriptions, visits to the E.R.count towards your deductible, and after insurace kicks in, most healthcare costs are 100% covered by the insurance. To offset the out of pocket expense, you have a Health Savings [bank] Account (with debit card, checks) where you have the option to put pre-taxed money every pay period. Your employer will also put a dollar amount every pay period towards your Health Savings Account every pay period. There is however, a limit on how much money you can place in the HSA every year (around $2,800 in 2007) but the money you do not use during the previous year rolls over for use the next year.

There are several benefits to using this insurance. First off, you have more control over your money, since you are paying out of pocket until the deductible is met. Second, even though you are paying out of pocket, you are paying with pre-taxed money, so depending on your tax bracket, you can save a lot of money. Also, like any savings account, the money in your HSA compounds interest, and if you have several good years, it can amount to a big chunk of money. If you are healthy, single, and you know you are not going to need prescriptions or doctors' appointments, this is a good plan for you because the HSA becomes a good investment. Also, if you know you are going to have medical expenses well over the deductible, it might be a good choice, since once the insurance kicks in, it covers 100%, and the money that you pay out of pocket, if you pay using your HSA account, is tax free.


However, it seems to me that you are severely penalized if you have a family, or if you are in the middle of the road when it comes to medical expenses. Under this plan, a family is considered to be a single unit, with a single deductible. The family has to meet the deductible before the insurance kicks in (and can be covered by a single individual). The problem is that the deductible for the family is usually double that of an individual, and it can amount to a lot of money to pay out of pocket for medical expenses (in my case, I'd have to pay $5000 before my insurace covers anything). If your family is healthy, but maybe only need a couple hundred dollars in prescription (you pay full price) a month (say you need allergy medicine, or pharmaceuticals for which there are no generics), there is no way you can actually cover the amount of the deductible in a year, and you end up paying for all of your medical costs out of pocket, and no significan money in your HSA account.