Health Savings Accounts

A High HSA Deductible Is Not A Big Deal

For the majority of people, health insurance is very confusing. As a Health Insurance Agent it is very difficult to try to explain various health insurance products so a client can make an intelligent decision. In trying to “get the point across” I will not be specific to a particular plan.

People that have a $1,000.00 deductible would probably say “why would I want to switch to a HSA with a $5,150.00 deductible”? Well, let’s take a “typical” person, with a family, that would be paying around $750.00 to $1,400.00 per month in insurance premiums for that $1,000.00 deductible plan. For discussion purposes, we will say that a $1,000.00 deductible plan is costing $750.00 per month - $9,000 per year.

With health insurance the “deductible” is only one item you will be responsible for. Co-insurance, co- payments, and numerous expenses not covered under the policy are some others. Most 80/20 insurance plans have a co-insurance to $15,000. That means the client would be responsible for the 20% of $15,000.00 plus the deductible. That adds up to $3,000.00 plus the $1,000.00 deductible for a total of $4,000.00 and that is per person!!! Usually, times 3 people per family equaling $12,000.00 in deductible and co-insurance per family.

So, in reality, if one family member would go into the hospital, their cost would be the hospital co-pay amount plus $4,000.00 (deductible and co-insurance) and still have to pay $9,000.00 premium per year.

Co-pays for doctor’s visits, procedures and prescriptions are going higher and higher. Convenient, yes, but for that convenience, you are probably paying $20 to $60 per month more included in the premium. Prescription co-pays are great. But, again, another $20 to $60 (depending on age) is included in your premium. And co-pays seldom accumulate towards the deductible.

A HSA HAS A DIFFERENT CONCEPT. Think about the total amount of money you pay out-of-pocket every year for all medical care and health insurance. This would include insurance premiums, deductibles, co-insurance, co-pays (hospital, doctors, out-patient, and prescriptions) and expenses not covered by insurance plans. Oh, yes, don’t forget taxes. If you were eligible to reduce your tax bill by carrying a particular type of plan and choose not to do so, isn’t it true you are voluntarily paying more money in taxes than you should? And as an extra kick in the pants, what if you were able to pay for small routine medical bills with dollars that you were previously using for taxes!!!!

Every year you pay health insurance premiums and taxes, but deductibles, co-insurance co-pays, etcetera with respect to in hospital or large out-patient surgery only comes into concern the years when these big medical bills incur. How many years in a row has anyone in your family had these big medical bills? I believe the average person is hospitalized 1 out of every 12 or 15 years.

So for those people that have a “lower” deductible and do not meet this deductible every year, it is irrelevant how large or small your deductible happens to be. As an Agent, I know the insurance companies LOVE people who pay extra for low deductibles and never meet them!!!

Let’s take this "typical" family person mentioned above and put him into a $5,150.00 “high deductible” with 100% coverage thereafter HSA plan with a premium of $3,720.00 per year. Also, let’s have this family person fully fund the personal Health Savings account for the first year at $5,150. So in total $8,870 would be equal to most “lower” deductible health plans although the main difference is that the unused portion of the $5,150 is theirs to keep.

With the above HSA plan, if a family member would go into the network hospital their cost would be the $5,150.00 family deductible less the $5,150 personal HSA savings and THE BALANCE OF THE DEDUCTIBLE WILL BE PAID BY THE “HOSPITAL INDEMNITY RIDER”. Click here to learn more about the Hospital Indemnity Rider. As compared to the low deductible scenario above, IT IS OBVIOUS THAT A HSA PLAN IS A BETTER CHOICE.

The icing on the cake is how a HSA plan can impact taxes. By fully funding the personal HSA savings account, an average tax bill is going to save about $1,700 a year ($5,150 contribution x 33% tax rate assumed = $1,700 tax savings). This would be the tax deduction on line 33 front page of the tax form 1040.

Our scenarios have been examples to only the first year of a HSA plan. Hopefully, contributions to the personal HSA savings will continue to the maximum amount allowed by law. Year after year it gets better and better with a HSA. Where else can you build equity in a health care plan!!!

A HSA IS A GOOD START IN LOWERING YOUR HEALTH CARE COST AND PUTTING YOU BACK IN CONTROL OF YOU HEALTH CARE CHOICES. ISN’T THAT WHAT EVERYBODY WANTS?

Who is best-suited for an HSA ?

Those people who can think in a new way about an old problem, funding of their health care program. There are no co-pays such as those available in most group/individual health plans, and the “deductible” mechanism is definitely different than in most “traditional” plans.
Some traits that are common with people who are happy with their HSA are:

Do not want to pay high health insurance premiums
A desire to reduce federal income taxes
The discipline to fund the personal savings account instead of overpaying for traditional health insurance.
The willingness to assume the risk inherent with a high “deductible” plan,
offset by lower premiums & Taxes
An interest in saving additional tax-sheltered money toward retirement

Do You Have these Traits ???