(www.inkthinkerblog.com) — Affordable health insurance is one of the biggest concerns for self-employed folks (you know, aside from finding work and getting paid). I know that losing my husband’s benefits when he left his job was a big stressor for us! I recently had a chance to sit down with eHealthInsurance.com Vice President of Human Resources Wendy Nice Barnes to get some insider advice on how to save money on health insurance when you’re self-employed or running a small business.
But first, some background, courtesy of eHealthInsurance.
- There were 10,413,000 self-employed according to the U.S. Bureau of Labor Statistics, “Employment and Earnings Online,” January 2008 issue.
- Workers 55 and older represent one of the fastest-growing groups of the self-employed, says consulting firm Challenger, Gray & Christmas.
- The number of 55-plus Americans working for themselves has increased 28 percent since 2000, compared with stagnant or declining self-employment for most other age groups, according to a Challenger analysis of government data.
- According to Harvard researchers, at least 50 percent of all bankruptcies result – at least in part – from medical expenses.
- Affordable health insurance is possible for any age group.
- Average health insurance premiums for people ages 25-34 were $128 per month with an average $1,829 deductible
- Average health insurance premiums for people ages 35-44 were $173 per month with an average $1,955 deductible
- Average health insurance premiums for people ages 45-54 were $227 per month with an average $2,262 deductible
- Average health insurance premiums for people ages 55-64 were $301 per month with an average $2,420 deductible
Tips for Solo Self-Employed
Wendy shared with me that the single most important factor in finding affordable health insurance is to arm yourself with information: Carefully research your plan choices and understand all of your coverage options before making your choice. You also want to get a good understanding of the terms that the agencies use. Shop around for the coverage you need,” Wendy said. “The best option is to dig in and investigate the alternatives.” She suggests the following:
- Be very honest with yourself about the coverage that you need and will use.
- Don’t over pay for things you don’t need, make sure any coverage you get takes care of your real needs.
- If you have children, make sure their needs will be covered by any policy you buy, so be sure you’re looking at the largest varieties of plan options available in your state.
- Your safest bet is to go to a broker (such as eHealthInsurance or 2 Insure 4 Less) that is licensed in your state and sells the widest variety of products available.
- Consider an Health Savings Account (HSA) that can grow with you and your business. With a HSA you can purchase a higher deductible plan and then save money – pre-tax – in a HSA. You can contribute pre-tax dollars to your own HSA and use the money in that fund to to pay for qualified medical expenses when they arise.
- Ask your doctor or pharmacist if you can switch to lower-cost medications, shop around for basic medical supplies on your own, and take advantage of free preventive care.
- Make sure you get your yearly physical; it could determine your eligibility for future health plans. Knowing your current health status better prepares you to make a decision on whether you should change plans or if you can scale down your existing (or new) plan in the event you need to make a change in the future.
- Check your health insurance plan to see if they offer a discount at local or national health clubs. Some plans do and you can save money on the monthly membership cost for the family.
- Don’t be afraid to mix and match plans and coverage options for family members to keep costs lower.
The best way to figure out what kind of insurance coverage will work for you is to do a comprehensive self-check of your health. “Ask yourself how often you go to the doctor, what your usual symptoms are, what regular prescriptions you take, and what maintenance medications you take,” said Wendy. “By doing a self-assessment, you can then go to a site like eHealthInsurance and tailor a plan to your needs. For instance, you may not need a maternity benefit. If you’re on a maintenance drug and it’s generic and you’ve been on it forever and it works well for you, you may find you can get discounted rates for a 90-day supply.
“Model a plan that’s for your needs,” Wendy said. “Compare similar plans with different carriers to make a correct decision. If saving is the most important thing for you and you’re relatively healthy, you may be set with a higher-deductible plan because your premiums will be much lower.”
Tips for Self-Employed With Employees
If you’re running a small business and need to provide insurance for your employees, these extra tips from Wendy will help. Keep in mind that to use a group plan, you actually need a small group of people. You and your spouse wouldn’t be enough because you’d be on the same plan. Check individual offerings for details.
- Talk to your employees. Understand the coverage your employees need most, and get the plan that covers those needs, and only those needs. For example, if pregnancy coverage is not an important priority for your employees, considering a plan without pregnancy coverage can save you money.
- Investigate group and small business plans. Again, be very honest with yourself about the coverage that your employees need and will use. Make sure any plan you buy will meet the real needs your employees have and fit your budget. Again, it’s a good idea to work with a licensed agent or broker that can help you find the right health insurance plan at the right price.
- Consider a business HSA. If a group plan is too expensive, you may have the option of helping employees with a business HSA. With a business HSA employees purchase their own health insurance plans and open HSA. Employers are then able to contribute pre-tax dollars to their employee’s HSA which may be used to pay for qualified medical expenses or saved for the future.
- Get your group healthy. Develop programs to encourage healthier employees, such as finding a local health club that will give your employees a discount on memberships. A healthier group will help you save on premiums in the long run.
Health Insurance Resources
- eHealthInsurance – Free Instant Quotes
- Compare Health Insurance Quotes with 2 Insure 4 Less
- eHealthInsurance.com YouTube Channel
Contents Copyright © 2006-2014 Kristen King
(image: Sundeip Arora )
Comments on this entry are closed.
I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.
The acronym HSA is being tossed around quite a bit nowadays especially since the tax advantages of owning an HSA and a corresponding qualified HDHP (Deductible Health Plan) have been significantly increased under the former Bush administration. Effective December 20, 2006 President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006, enhancing Americans’ access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants’ to build their funds. To read about the new adjustments Click here: http://www.treas.gov/press/releases/hp209.htm For the 2009
IRS H.S.A. COLA Adjustments click: http://www.treasury.gov/press/releases/hp975.htm
HSA stands for Health Savings Account, more commonly referred to as a “Medical IRA”. HSA qualified HDHP’s are one of several relatively new Health Insurance concepts that fall under the heading of “Consumer Driven Health Insurance”. Health Savings Accounts are a unique way to attractively manage your health insurance costs. They were originally named MSA’s or Medical Savings Accounts designed by Senator Bill Archer (R) of Texas. Bill’s project was to find a way to reduce the cost of health insurance for the self employed without sacrificing quality coverage for a major medical illness. Bill’s brilliant idea was to eliminate the parts of a Traditional Health Insurance Plan that cost the consumer the most money. These expensive benefits include outpatient doctor “co pays” and outpatient prescription “co pays”. Bill approached Congress with a proposal that stated in essence that if you remove those two features and keep the major medical coverage in place you could conceivably cut the cost of your health insurance premium considerably. He was absolutely right!
To illustrate how Bill’s idea works in the real world. We will use a real world example. Tony & his wife are currently paying $1,134 a month for Cobra continuation coverage from a previous group plan. In comparison, the monthly premium for an HSA qualified HDHP (High Deductible Health Plan) which covers each insured family member up to $5 million dollars is less than half of the premium that they are paying now ($481.64 monthly to be exact). This is a yearly savings of $7,828.32 or a monthly savings of $652.36. This is a significant difference. However the insured has to give up all of their outpatient co pays. Is this worth it? This was the question posed to Senator Bill Archer (R) when he approached Congress back in the late 1990’s. His answer to Congress was simply “make it worth it”.
In other words, he asked Congress to make it worth it to the insured. Their response was two fold. And it is these two primary reasons that make HSA’s a “no-brainer” for every self employed prospective insured and for their corresponding employees. The first thing Congress did was to state that if a policy holder buys a major medical health insurance policy (HDHP) with a yearly family deductible between $2,200 per family (not per person) or as high as $5,800 per family we will call that an HSA qualified health insurance plan (HDHP).
They further said that in order to make giving up outpatient co pays more attractive to the insured we will allow anyone who has an HSA qualified health insurance plan (HDHP) the option to open a tax favored HSA (Health Savings Account) with their local bank or financial brokerage house. Since the insured is saving a considerable amount of money each month by giving up their out patient co pays, we will allow them to take that extra premium that they would have normally given the insurance company for the “privilege” of a co pay and put it into a 100% tax deductible account that will grow tax deferred at an interest rate adjusted by the Fed.
In addition to depositing the amount you save in insurance premiums, you may also deposit in your HSA an amount equal to what the IRS allows for that given year. For the year 2009 the maximum contribution a family can make to their HSA account is $5,950. In addition, any family member who is 55 years of age or older can deposit an additional $1,000 annually (more on the age 55 allowance below). This means that the total amount that Tony and his wife (in our example above) can deposit per calendar year is $7,950 and they can take a 100% tax deduction for that contribution similar to an IRA.
Furthermore, if they do incur medical expenses that arise throughout the course of the year that are subject to the deductible (i.e. prescriptions, doctor’s office visit charges, etc.) the IRS will allow them to pull out that money that they put into their optional tax deductible, tax deferred HSA savings account to pay for those expenses. When they use their HSA money to pay for those expenses the IRS will allow them to write those expenses off at a 100% tax deduction. The list that the IRS allows them to spend their HSA money on is very liberal and includes things like dental, orthodontics, eyeglasses, radiokeratonomy (Lasik corrective eye surgery), alternative medicines etc. Click the hyperlink to see the list of allowable expenses and disallowed expenses on the HSA section of the IRS web site here: http://www.irs.gov/publications/p502/index.html
Arguably the most attractive tax advantage to owning an HSA is the fact that the money left over in the HSA account that was not used on medical expenses at the end of the year is “rolled over” into the next year and awarded a higher rate of tax deferred interest. The insured also has the option to roll those unused funds into no load mutual funds, thereby building an extra tax deferred retirement account with money they would have normally given to the insurance company each and every year whether or not they had any claims that year!
It should also be noted that with not having a “co pay” with your plan does not mean that your outpatient doctor visits and outpatient prescription drugs will not be a covered expense. With most HSA qualified HDHP’s these charges are a fully covered expense just as they would be with a Traditional Health Insurance Plan. The only difference is these charges will be subject to the “aggregate” family deductible.
Being “subject to deductible” does not mean that you will pay full price for these charges either. If you stay within the vast PPO network that most reputable carriers offer (www.phcs.com) your outpatient doctor office visit charges will be discounted by as much as 40%. Your prescriptions will also be discounted significantly as well by staying within the Rx prescription network.
Let’s break that down in plain english. Let’s say your doctor’s office charges you $100 for a “sick visit”. If you use a PPO provider (typically PHCS or MultiPlan) those office charges will be “re-priced” down to roughly $60. Now compare that to a Traditional plan which provides you with a $25 “co pay”. The difference to you is $35 out of pocket for that doctor’s office visit. But is that all you are really saving?
Not if you add in the monthly premium savings between the two plans. The typical monthly premium savings between a Traditional plan and an HSA qualified plan for a family is $200 to $300 monthly or more. Let’s split the difference at $250 less monthly. This equates to an annual savings of $3,000.
Now let’s take that $3,000 annual savings and deposit it into a tax deferred, tax deductible interest bearing account. Let’s go a step further and imagine you find an HSA account that bears you NO interest AT ALL (which is not that hard to imagine in this economy). You’re still saving $3,000 annually and your deducting that amount from your adjusted gross income. This means less reportable income which means less taxes.
Now lets imagine you have no major medical claims in year two and you deposit the same amount. Now in year three you have a worse case scenario occur. Now you have $9,000 to help pay your “aggregate” family deductible. Moreover, since deductibles with HSA qualified HDHP’s include only one “aggregate” deductible for the entire family there will be no other risk to any other family member for the rest of that year. Unlike Traditional Health Insurance Plans which typically require each of three separate family members to pay their own calendar year deductible if they end up in the hospital (or need an MRI, CT, Nuclear Medicine Scan etc.)
The longer you look at HSA qualified HDHP’s the more sense they make. This is why they have caught on like wildfire and will continue to do so. The only inhibitor to the spread of HSA’s is lack of education (as is the case with any other financial vehicle).
To learn more about HSA’s and the recent federal legislation that has made them even more attractive to people over the age of 55 click: http://www.treas.gov/offices/public-affairs/hsa/about.shtml to read all about them on the Federal Governments HSA educational web site. To learn more about H.S.A.’s in a power point presentation format please click here: http://www.hsacenter.com/
If you are an employer and are considering HSA qualified plans for your employees consider this. An individual’s employer can make contributions that are not taxed to either the employer or the employee. The combined income and payroll tax deductibility leads to discounts for health insurance of over 40 % in some cases relative to other forms of insurance. For more details for the employer http://www.treas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml
Beginning in 2007 one company – American Community Mutual (www.american-community.com) introduced a truly unique HSA qualified HDHP. It is called the “Next Generation” HSA (see the first brochure pictured below). This HSA qualified HDHP has four unique features that make it superior in design over all other individual HSA qualified HDHP’s on the market today.
The first of the four benefits is called the “embedded deductible feature”. As aforementioned, the typical HSA qualified HDHP does not start paying anything until the entire family deductible has been satisfied. This means that whether one person gets sick or multiple family members get sick the insurance company will not pay anything until the entire family deductible has been satisfied. If your plan has a $5,450 family deductible this can feel unfair if only one member of your family gets sick.
In stark contrast, the American Community Mutual “Next Generation” HSA qualified HDHP eliminates this problem by offering the “embedded deductible feature.” This benefit (for a few dollars more per month) requires the insurance company to start paying after only one family member has satisfied their individual deductible (half of the family deductible). This significantly reduces the out of pocket expense to the family if only one person gets sick. This is a valuable benefit since statistically speaking only one family member (if any) will incur medical claims in any given year. This benefit is not unique to the “Next Generation” HSA qualified HDHP. It can be found on other HSA qualified HDHPs on the market today. However, the next 3 benefits are unique to the “Next Generation” plan.
The second and more valuable benefit is the $10,000 “stop loss” number that is included when the 80% coinsurance option is chosen. According to IRS Doc 5305-B (http://www.hsacenter.com/2008-HSA-Contribution-Limits.php) the new (2009) adjusted maximum annual out of pocket expense that a family will pay that owns an HSA qualified HDHP with the 80% coinsurance option is $11,600 regardless of the deductible chosen.
Although this is the maximum allowable out of pocket expense that a family will experience if they choose the 80% option with any other HSA qualified HDHP American Community Mutual decided to reduce the maximum out of pocket a family can experience per year on their “Next Generation” plan to only $2,000 in addition to the chosen deductible.
This quite simply means that after a family has satisfied their chosen calendar year family deductible the insurance company will pay 80% ($8,000) and the family will pay 20% ($2,000) of the first $10,000 in medical bills that are incurred. Afterwards the insurance company will pay 100%. This first $10,000 is known as the “stop loss number”. The Next Generation plan is the only HSA qualified plan on the market today that offers this type of co-insurance arrangement and it is much better than the typical HSA qualified plan that offers an 80% option because it results in significant out of pocket risk reductions to a family.
To illustrate this further, we will use the $5,450 family deductible for example. With the typical HSA qualified plan, if an 80% option is chosen then this would subject the family to an out of pocket expense of $11,600. In stark contrast, the Next Generation plan would subject the family to only $7,450 before American Community Mutual would pay 100% of the family’s medical bills for the rest of the calendar year. This is $4,150 less out of pocket than any other HSA qualified HDHP on the market today and the Next Generation plan is priced the same or less than most plans!
The third unique benefit is the unlimited “Accident Medical Expense” benefit. This benefit will waive the entire deductible if an accidental injury occurs and pay for all the charges related to the accident at either 100% or 80% depending on the coinsurance you chose. This benefit will kick in each and every time an injury occurs to any family member. This benefit is only available with the “Next Generation” HSA qualified HDHP.
The fourth unique benefit is the “Benefit Period”. All other HSA qualified HDHP’s restart the calendar year deductible on January 1st of each calendar year. This design prevents many consumers from purchasing their health insurance late in the calendar year. For example, if an insured has had no claims for the entire year of 2009 and then a sizeable claims occurs in December of 2009. The insured would have to satisfy their 2009 calendar year deductible before benefits would be paid. The danger here would be if the insured had another claim in the month of January 2010. Since it would then be a new calendar year, the insured would have to satisfy the new 2010 calendar year deductible before benefits would be paid.
The “Next Generation” HSA qualified HDHP eliminates this problem by starting your benefit period on your requested effective date. The next benefit period would not begin again until 12 months after that date. So with this design, if you were to purchase your “Next Generation” HSA qualified HDHP on December 1st, 2009, then you would not be required to pay another deductible until 12 months later on December 1st, 2010. This is a very attractive benefit for anyone considering buying an HSA qualified HDHP late in each calendar year. It is a much better “Benefit Period” design than the typical calendar year design. This benefit is only available with the “Next Generation” HSA qualified HDHP. Please “Contact Us” with questions about HSA qualified HDHP’s. If you have a C.P.A. or tax advisor please feel free to ask he or she about the advantages of owning an HSA as well. Seven of the best priced HSA qualified HDHP’s available on the market today are highlighted below.
Thanks for this article, Kristen!
Couple of things, though:
a) I’d love to see advice geared specifically to those freelancers with chronic conditions. Over 100 million Americans have some kind of chronic condition (hypertension, arthritis, diabetes, etc.), and I’ve yet to find a private insurance company that will offer coverage to individuals struggling with them, even if the condition is well-controlled via medication. At best they might offer expensive, limited coverage but will consider the condition pre-existing and will refuse to cover anything that can be remotely related to it, from medications to doctor’s visits to surgeries. Some state insurance plans do cover it, and I believe there is legislation being introduced that will force companies to provide coverage for pre-ex conditions, but at the moment options are limited.
2) I’m concerned about Health Savings Accounts. The name is a misnomer, since unlike traditional savings accounts, most are investments just like IRA’s, mutual funds and other investment vehicles. As we’ve all witnessed over the past several months, having anything in the stock market means taking on certain risks, and if you rely on your HSA for your medical expenses, you may have found yourself in the hole if your investments suffered major losses.
Cheers,
Marjorie
Marjorie´s last blog post..Walter Mosley in Dallas tomorrow, Friday, 4/2/2009
Awesome awesome post Kristen! I’ve been thinking about finally leaving my day job but have been concerned about health insurance for my daughter. A very quick scan through ehealthInsurance showed me that it could be affordable – especially when I factor in what I am already paying. You posted this exactly when I needed to read it.
Kim Woodbridge´s last blog post..Smiley Bug: Comment Moderation Problem in WordPress 2.7
Kristen:
Lots of good advice on what can be a difficult issue for a lot of self-employed people.
In my opinion and experience, points 1 and 2 are the most important — and could use a little elaboration. Being honest with yourself about what you need and not over-paying means accepting that insurance does not need to cover every medical expense from the first dollar. High deductible plans with reasonable co-pays are not prohibitively expensive for the self-employed person who is actually earning a living and they provide what you need most, which is protection against massive expenses.
For maximum savings on maintenance drugs, see if the generic version of your medication is among the hundreds of drugs that Safeway, Target and Wal-Mart pharmacies sell for $4 for a typical month’s supply. It’s hard to do much better than that. For more expensive non-generics, if you’re 50 or over, join AARP and get your prescriptions filled by their Walgreen’s mail order service which costs nothing to join (as opposed to their in-store discount card which has an annual fee).
As to your interview subject’s suggestion that you’ll get the best deal if you work with a broker — well, would you expect a broker to say anything different?
Ken
Kristen:
Lots of good advice on what can be a difficult issue for a lot of self-employed people.
In my opinion and experience, points 1 and 2 are the most important — and could use a little elaboration. Being honest with yourself about what you need and not over-paying means accepting that insurance does not need to cover every medical expense from the first dollar. High deductible plans with reasonable co-pays are not prohibitively expensive for the self-employed person who is actually earning a living and they provide what you need most, which is protection against massive expenses.
For maximum savings on maintenance drugs, see if the generic version of your medication is among the hundreds of drugs that Safeway, Target and Wal-Mart pharmacies sell for $4 for a typical month’s supply. It’s hard to do much better than that. For more expensive non-generics, if you’re 50 or over, join AARP and get your prescriptions filled by their Walgreen’s mail order service which costs nothing to join (as opposed to their in-store discount card which has an annual fee).
As to your interview subject’s suggestion that you’ll get the best deal if you work with a broker — well, would you expect a broker to say anything different?
Ken
Oops…forgot to say great post! Looking forward to your next one.
In my opinion and experience, points 1 and 2 are the most important — and could use a little elaboration.
Consumer Driven Health Insurance is the smartest way for entrepreneurs and Small Business Owners to keep their costs down. However, like any other financial product education is key with these types of products. The acronym HSA is being tossed around quite a bit nowadays especially since the tax advantages of owning an HSA and a corresponding qualified HDHP (Deductible Health Plan) have been significantly increased under the former Bush administration.
Effective December 20, 2006 President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006, enhancing Americans’ access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants’ to build their funds. To read about the new adjustments Click here: http://www.treas.gov/press/releases/hp209.htm For the 2009
IRS H.S.A. COLA Adjustments click: http://www.treasury.gov/press/releases/hp975.htm
HSA stands for Health Savings Account, more commonly referred to as a “Medical IRA”. HSA qualified HDHP’s are one of several relatively new Health Insurance concepts that fall under the heading of “Consumer Driven Health Insurance”. Health Savings Accounts are a unique way to attractively manage your health insurance costs. They were originally named MSA’s or Medical Savings Accounts designed by Senator Bill Archer (R) of Texas. Bill’s project was to find a way to reduce the cost of health insurance for the self employed without sacrificing quality coverage for a major medical illness. Bill’s brilliant idea was to eliminate the parts of a Traditional Health Insurance Plan that cost the consumer the most money. These expensive benefits include outpatient doctor “co pays” and outpatient prescription “co pays”. Bill approached Congress with a proposal that stated in essence that if you remove those two features and keep the major medical coverage in place you could conceivably cut the cost of your health insurance premium considerably. He was absolutely right!
To illustrate how Bill’s idea works in the real world. We will use a real world example. Tony & his wife are currently paying $1,134 a month for Cobra continuation coverage from a previous group plan. In comparison, the monthly premium for an HSA qualified HDHP (High Deductible Health Plan) which covers each insured family member up to $5 million dollars is less than half of the premium that they are paying now ($481.64 monthly to be exact). This is a yearly savings of $7,828.32 or a monthly savings of $652.36. This is a significant difference. However the insured has to give up all of their outpatient co pays. Is this worth it? This was the question posed to Senator Bill Archer (R) when he approached Congress back in the late 1990’s. His answer to Congress was simply “make it worth it”.
In other words, he asked Congress to make it worth it to the insured. Their response was two fold. And it is these two primary reasons that make HSA’s a “no-brainer” for every self employed prospective insured and for their corresponding employees. The first thing Congress did was to state that if a policy holder buys a major medical health insurance policy (HDHP) with a yearly family deductible between $2,200 per family (not per person) or as high as $5,800 per family we will call that an HSA qualified health insurance plan (HDHP).
They further said that in order to make giving up outpatient co pays more attractive to the insured we will allow anyone who has an HSA qualified health insurance plan (HDHP) the option to open a tax favored HSA (Health Savings Account) with their local bank or financial brokerage house. Contrary to popular belief, these funds are not exposed to stock market risk unless the account holder chooses to roll the balance in to a mutual fund at the end of each year. Since the insured is saving a considerable amount of money each month by giving up their out patient co pays, we will allow them to take that extra premium that they would have normally given the insurance company for the “privilege” of a co pay and put it into a 100% tax deductible account that will grow tax deferred at an interest rate adjusted by the Fed.
In addition to depositing the amount you save in insurance premiums, you may also deposit in your HSA an amount equal to what the IRS allows for that given year. For the year 2009 the maximum contribution a family can make to their HSA account is $5,950. In addition, any family member who is 55 years of age or older can deposit an additional $1,000 annually (more on the age 55 allowance below). This means that the total amount that Tony and his wife (in our example above) can deposit per calendar year is $7,950 and they can take a 100% tax deduction for that contribution similar to an IRA.
Furthermore, if they do incur medical expenses that arise throughout the course of the year that are subject to the deductible (i.e. prescriptions, doctor’s office visit charges, etc.) the IRS will allow them to pull out that money that they put into their optional tax deductible, tax deferred HSA savings account to pay for those expenses. When they use their HSA money to pay for those expenses the IRS will allow them to write those expenses off at a 100% tax deduction. The list that the IRS allows them to spend their HSA money on is very liberal and includes things like dental, orthodontics, eyeglasses, radiokeratonomy (Lasik corrective eye surgery), alternative medicines etc. Click the hyperlink to see the list of allowable expenses and disallowed expenses on the HSA section of the IRS web site here: http://www.irs.gov/publications/p502/index.html
Arguably the most attractive tax advantage to owning an HSA is the fact that the money left over in the HSA account that was not used on medical expenses at the end of the year is “rolled over” into the next year and awarded a higher rate of tax deferred interest. The insured also has the option to roll those unused funds into no load mutual funds, thereby building an extra tax deferred retirement account with money they would have normally given to the insurance company each and every year whether or not they had any claims that year!
It should also be noted that with not having a “co pay” with your plan does not mean that your outpatient doctor visits and outpatient prescription drugs will not be a covered expense. With most HSA qualified HDHP’s these charges are a fully covered expense just as they would be with a Traditional Health Insurance Plan. The only difference is these charges will be subject to the “aggregate” family deductible.
Being “subject to deductible” does not mean that you will pay full price for these charges either. If you stay within the vast PPO network that most reputable carriers offer (www.phcs.com) your outpatient doctor office visit charges will be discounted by as much as 40%. Your prescriptions will also be discounted significantly as well by staying within the Rx prescription network.
Let’s break that down in plain english. Let’s say your doctor’s office charges you $100 for a “sick visit”. If you use a PPO provider (typically PHCS or MultiPlan) those office charges will be “re-priced” down to roughly $60. Now compare that to a Traditional plan which provides you with a $25 “co pay”. The difference to you is $35 out of pocket for that doctor’s office visit. But is that all you are really saving?
Not if you add in the monthly premium savings between the two plans. The typical monthly premium savings between a Traditional plan and an HSA qualified plan for a family is $200 to $300 monthly or more. Let’s split the difference at $250 less monthly. This equates to an annual savings of $3,000.
Now let’s take that $3,000 annual savings and deposit it into a tax deferred, tax deductible interest bearing account. Let’s go a step further and imagine you find an HSA account that bears you NO interest AT ALL (which is not that hard to imagine in this economy). You’re still saving $3,000 annually and your deducting that amount from your adjusted gross income. This means less reportable income which means less taxes.
Now lets imagine you have no major medical claims in year two and you deposit the same amount. Now in year three you have a worse case scenario occur. Now you have $9,000 to help pay your “aggregate” family deductible. Moreover, since deductibles with HSA qualified HDHP’s include only one “aggregate” deductible for the entire family there will be no other risk to any other family member for the rest of that year. Unlike Traditional Health Insurance Plans which typically require each of three separate family members to pay their own calendar year deductible if they end up in the hospital (or need an MRI, CT, Nuclear Medicine Scan etc.)
The longer you look at HSA qualified HDHP’s the more sense they make. This is why they have caught on like wildfire and will continue to do so. The only inhibitor to the spread of HSA’s is lack of education (as is the case with any other financial vehicle).
To learn more about HSA’s and the recent federal legislation that has made them even more attractive to people over the age of 55 click: http://www.treas.gov/offices/public-affairs/hsa/about.shtml to read all about them on the Federal Governments HSA educational web site. To learn more about H.S.A.’s in a power point presentation format please click here: http://www.hsacenter.com/
If you are an employer and are considering HSA qualified plans for your employees consider this. An individual’s employer can make contributions that are not taxed to either the employer or the employee. The combined income and payroll tax deductibility leads to discounts for health insurance of over 40 % in some cases relative to other forms of insurance. For more details for the employer http://www.treas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml
Beginning in 2007 one company – American Community Mutual (www.american-community.com) introduced a truly unique HSA qualified HDHP. It is called the “Next Generation” HSA . This HSA qualified HDHP has four unique features that make it superior in design over all other individual HSA qualified HDHP’s on the market today.
The first of the four benefits is called the “embedded deductible feature”. As aforementioned, the typical HSA qualified HDHP does not start paying anything until the entire family deductible has been satisfied. This means that whether one person gets sick or multiple family members get sick the insurance company will not pay anything until the entire family deductible has been satisfied. If your plan has a $5,450 family deductible this can feel unfair if only one member of your family gets sick.
In stark contrast, the American Community Mutual “Next Generation” HSA qualified HDHP eliminates this problem by offering the “embedded deductible feature.” This benefit (for a few dollars more per month) requires the insurance company to start paying after only one family member has satisfied their individual deductible (half of the family deductible). This significantly reduces the out of pocket expense to the family if only one person gets sick. This is a valuable benefit since statistically speaking only one family member (if any) will incur medical claims in any given year. This benefit is not unique to the “Next Generation” HSA qualified HDHP. It can be found on other HSA qualified HDHPs on the market today. However, the next 3 benefits are unique to the “Next Generation” plan.
The second and more valuable benefit is the $10,000 “stop loss” number that is included when the 80% coinsurance option is chosen. According to IRS Doc 5305-B (http://www.hsacenter.com/2008-HSA-Contribution-Limits.php) the new (2009) adjusted maximum annual out of pocket expense that a family will pay that owns an HSA qualified HDHP with the 80% coinsurance option is $11,600 regardless of the deductible chosen.
Although this is the maximum allowable out of pocket expense that a family will experience if they choose the 80% option with any other HSA qualified HDHP American Community Mutual decided to reduce the maximum out of pocket a family can experience per year on their “Next Generation” plan to only $2,000 in addition to the chosen deductible.
This quite simply means that after a family has satisfied their chosen calendar year family deductible the insurance company will pay 80% ($8,000) and the family will pay 20% ($2,000) of the first $10,000 in medical bills that are incurred. Afterwards the insurance company will pay 100%. This first $10,000 is known as the “stop loss number”. The Next Generation plan is the only HSA qualified plan on the market today that offers this type of co-insurance arrangement and it is much better than the typical HSA qualified plan that offers an 80% option because it results in significant out of pocket risk reductions to a family.
To illustrate this further, we will use the $5,450 family deductible for example. With the typical HSA qualified plan, if an 80% option is chosen then this would subject the family to an out of pocket expense of $11,600. In stark contrast, the Next Generation plan would subject the family to only $7,450 before American Community Mutual would pay 100% of the family’s medical bills for the rest of the calendar year. This is $4,150 less out of pocket than any other HSA qualified HDHP on the market today and the Next Generation plan is priced the same or less than most plans!
The third unique benefit is the unlimited “Accident Medical Expense” benefit. This benefit will waive the entire deductible if an accidental injury occurs and pay for all the charges related to the accident at either 100% or 80% depending on the coinsurance you chose. This benefit will kick in each and every time an injury occurs to any family member. This benefit is only available with the “Next Generation” HSA qualified HDHP.
The fourth unique benefit is the “Benefit Period”. All other HSA qualified HDHP’s restart the calendar year deductible on January 1st of each calendar year. This design prevents many consumers from purchasing their health insurance late in the calendar year. For example, if an insured has had no claims for the entire year of 2009 and then a sizeable claims occurs in December of 2009. The insured would have to satisfy their 2009 calendar year deductible before benefits would be paid. The danger here would be if the insured had another claim in the month of January 2010. Since it would then be a new calendar year, the insured would have to satisfy the new 2010 calendar year deductible before benefits would be paid.
The “Next Generation” HSA qualified HDHP eliminates this problem by starting your benefit period on your requested effective date. The next benefit period would not begin again until 12 months after that date. So with this design, if you were to purchase your “Next Generation” HSA qualified HDHP on December 1st, 2009, then you would not be required to pay another deductible until 12 months later on December 1st, 2010. This is a very attractive benefit for anyone considering buying an HSA qualified HDHP late in each calendar year. It is a much better “Benefit Period” design than the typical calendar year design. This benefit is only available with the “Next Generation” HSA qualified HDHP.
If you have a C.P.A. or tax advisor please feel free to ask he or she about the advantages of owning an HSA as well. Click here: http://www.sbisvcs.com/hsa_qualified_hdhp.htm for seven of the best HSA qualified HDHP’s on the individual health insurance market today.