If you are covered by a group health insurance plan at work, you’ve already seen the pattern of increased premiums and reduced benefits over the last several years. With health insurance premiums rising much faster than general inflation, all employers are having to find creative ways to reduce their cost of benefits. In many cases, employers are having to choose to reduce or eliminate benefits vs. laying off employees. One type of health insurance plan that is becoming more popular to offer employees is an “HSA Qualified High Deductible Plan”, also referred to as a “Consumer Directed Health Plan”. These plans do have lower premiums, but that’s because you are taking on more risk to yourself for the cost of your health care.
With an HSA Qualified plan, you have a higher deductible that must be met each year BEFORE the insurance company will cover anything. In many cases, once you meet this deductible, all of your healthcare expenses thereafter are covered at 100%. So if an employee can set aside enough money to meet that deductible, they will be just fine.
There is a great tax benefit here in that you can set aside money pre-tax into a “Health Savings Account” (HSA) that can be used to meet your deductible. The money in the HSA account grows tax free, and can be rolled forward to future tax years. In other words, it’s NOT a use-it-or-lose-it type of account. This allows you to build up a tax-free savings account that can be used for healthcare related costs down the road. Many banks now offer HSA type accounts, and there are also several providers who specialize in these types of accounts. Many of them will allow you to invest part of the money into mutual funds for longer term growth as well!
These plans can also be purchased by individuals and families who don’t have group insurance available to them.
The Caution
If you’re going to opt for this type of plan, you need to make sure you set aside money into an HSA savings account to help you pay for your medical costs. If your deductible is $5000, you’re going to have to pay the first $5000 worth of medical expenses out of your own pocket each year (including doctor’s office visits, medications, etc.). If you don’t do this, you risk putting yourself into debt to pay for medical expenses, and that is never good.
Here is a news story that one of the TV stations here in Charlotte ran this week on these types of plans…
“WSOC Channel 9 HSA Qualified Health Plans.” Please don’t laugh too hard at the goofy guy in the brown suit!
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