White Paper Report
7 Things You Should Know About HSA Plans
C.Dean Richard, JD, MSBA "the HSA king"™
(an HSA expert and one of America's most trusted benefits advisors)
Health savings accounts (HSAs) are wildly popular. Since their introduction in 2004, over 5 million Americans have enrolled in these so-called consumer-driven health plans. But, alas, HSA plans are not for everyone. Here are some pointers to help you consider whether an HSA will benefit you and your family.
1. Although many people will save BIG with an HSA, not everyone will save.
When you open an HSA plan, you should be able to save a bundle on premiums with a high deductible health plan. In fact, most of our clients save an average of 40% compared to their previous plans. Nevertheless, some people will not realize any net savings. Those most likely to realize significant savings are people who pay all of their own health insurance premiums, such as the self-employed, who are relatively healthy with few medical expenses.
2. A health savings plan restores freedom of choice.
An HSA plan puts individual consumers back in control of their own health care. This also means that each individual must be more responsible for his or her own health care decisions. This approach of self-reliance is not always popular with or appropriate for everyone, especially those who have become comfortable with HMO-type "co-pay" plans.
3. HSA's are similar to IRA's.
Every dollar contributed into your HSA account is deducted from your taxable income in the same manner as contributions into a traditional IRA account--regardless of whether you spend it or just save it. Interest and investment earnings in a HSA accumulate tax-deferred, just like a traditional IRA. Unlike an IRA, withdrawals are tax-FREE when used to pay qualifying medical expenses. In many situations, new account holders are able to almost fully fund their HSA with money saved on premiums from a prior, higher priced plan. By stashing all or most of those savings into an HSA, the account holder realizes instant, additional savings in the form of reduced taxes.
4. You must have a properly qualified high deductible health plan ("HDHP").
you can open a health savings account, you must have a special "high deductible health plan" in effect.
One of the biggest misconceptions about HSA plans is that any insurance policy with a high deductible will qualify the policyholder to establish an HSA account. IRS regulations, however, are quite specific. Not just any policy with a so-called "high deductible" will suffice. It is important to be certain that you are insured under a properly qualified policy. Your best bet is to work with a qualified and duly licensed health insurance broker who is experienced in marketing properly qualified HSA plans.
5. You must be insurable in order to qualify for the HDHP.
Because most people do not have a properly qualified high deductible insurance policy, they will need to switch insurance plans in order to become HSA-eligible. Unless coverage is being offered under small group reform laws (generally groups with 2-49 employees), the new high deductible plan will be individually underwritten by an insurance company. This means that some "pre-existing" conditions may not be fully covered. Alternatively, some companies may opt to cover certain "pre-existing" conditions in exchange for slightly higher premiums.
6. HDHP premiums are not always as low as you might expect.
This happens for one main reason. Simply stated, the underlying insurance policy is just that—a health insurance policy. Although it has a "high" deductible, as required by law, the insurance company still must compensate for the risk it is assuming over the deductible amount, which it does by charging premiums. In some states, due to various regulatory concerns, premiums on these high deductible plans do not allow families to realize as much of a net savings compared to people who live in other states where health plan costs are dramatically lower. (An example of a high cost state is New Jersey, and an example of a really low cost state is Nebraska.)
7. An HSA plan helps keep a lid on health insurance rate increases.
Make no mistake-you will have rate increases with your HSA insurance policy. Because an HSA qualified policy is still a health insurance policy at heart, there is no logical reason to presuppose that an HSA policy would be immune to rate increases required by an insurer to keep paying claims and stay in business. But what you can expect is that the actual dollar amount of any future rate increases will be substantially lower compared to traditional health insurance plans (regular PPO and HMO plans). This is true because insurers base increases on percentages, and the same percentage of a lower base premium results in a lower dollar increase. It's not a perfect solution-but it is the most cost-efficient solution for many qualified people.
C. Dean Richard
ABOUT THE AUTHOR: C. Dean Richard is a benefits consultant and financial planner with over 25 years experience. His nationwide agency has marketed health savings account plans and its predecessor, the medical savings accounts, since 1999. His familiarity with the HSA plans has earned him the nickname “the HSA king.” Clients of his agency range from white-collared self-employed professionals to spouses of employees who must purchase their own individual health insurance. Although low premiums are important, his agency focuses on recommending high value plans underwritten exclusively by a few select brand name, highly rated carriers with outstanding reputations for quality service.