Understanding High Deductible Health Plans

Taken from Bankrate.com

Many consumers find themselves paying more of their own medical care costs as corporations ditch traditional health plans and move toward high-deductible health insurance plans coupled with tax-advantaged health savings accounts.

Known as consumer-directed health care, these plans seek to drive down health care costs by placing more of the responsibility and cost burden on consumers.
If you have a greater financial stake in getting better and cheaper health care, the logic goes, you'll invest more energy into the process. And as more companies jump on the bandwagon, this will increase competition in the health care industry, further curbing costs.
"Consumer-directed health care doesn't refer to a single product, but to a portfolio of products and services that assist health insurance plan members in becoming informed health care consumers and taking responsibility for their health care decisions," says Thomas W. Rubino, director of public affairs for Horizon Blue Cross Blue Shield of New Jersey.
Since the premiums for high-deductible health care plans -- $1,000 or more per family member -- are much less than traditional health insurance plans, you're encouraged to invest the difference in your pretax contribution to a health savings account, which you can use for routine and out-of-pocket health care expenses.
But will it work?While this sounds good in theory, the question remains: How well it will work in practice?
Many consumers are responsible for their own retirement, and the fact is many are woefully unprepared because they either can't or won't save enough.
And, according to a survey conducted by the Commonwealth Fund and the Employee Benefit Research Institute in late 2005, people enrolled in consumer-directed health care plans are less satisfied than consumers enrolled in more comprehensive, traditional health care plans.
"These plans are promoted by policymakers and employers who believe that they will make employees more sensitive to health care costs, but the fact is that Americans are already paying much more in out-of-pocket costs for their health care than in other industrialized nations," says Sara Collins, assistant vice president of the Commonwealth Fund, a private nonpartisan foundation that supports research on health care.
"There has been very slow growth in wages in the U.S., and people are already struggling to pay for their retirement, their kids' college educations, and this is just another cost burden on an already overburdened consumer," she says.
The ABCs of consumer-directed health careAccording to a study by the federal General Accountability Office, between 5 million and 6 million Americans were enrolled in such plans as of January 2006. While these consumers represent a fraction of Americans enrolled in private health insurance plans, this share is growing quickly.
Not only are many employers adopting this model, but many self-employed individuals are also going this route because there are so few other affordable health-insurance options available.
Many large health insurance companies offer consumer-directed health plans to employers and individuals. Many plans offer different levels of deductibles, typically starting at or just above the health savings account minimum of $1,050 and going up to $5,000.
A health savings account, or HSA, is a flexible spending account in which consumers and employers make tax-advantaged contributions that the consumer uses to pay out-of-pocket health care expenses.

Plans differ widely on their options. JoAnn Laing, author of "The Consumer's Guide to HSAs" and "The Small Business Guide to HSAs," recommends that anyone looking for a high-deductible health plan to get at least three quotes. You can get these through independent insurance agents.
"Make sure the quotes are for comparable policies," she says. "If one has a lifetime cap on benefits and the others don't, they aren't comparable. Look for specific options that are applicable to you. If you aren't planning on having a family, you don't need maternity coverage, for example. If you travel a lot, you'll want some provision for out-of-network-care coverage. Look for provisions about renewal and rate increases, and get some type of commitment in writing there."
There are some plans that exclude preventive care from your deductible, meaning that physicals, well-baby care and other preventive care is covered without charge to you or through a co-pay. However, under most plans, routine doctor's visits aren't covered, and many don't cover prescriptions. So, instead of paying a $25 co-pay when you visit your doctor, you might owe $75 or $100.
In addition, if you need expensive tests and/or hospitalization, you pay those costs out of pocket until your deductible is met, and then pay an ongoing percentage of that cost, up to 30 percent. The cheapest plans have the highest deductible and the largest co-pay percentage; the more expensive plans have lower deductibles and lower co-pay percentages. This is where the health savings account comes in: You and your employer contribute to that account, and those contributions cover your qualified out-of-pocket expenses.
Health savings accounts Brokers, banks and financial institutions typically administer HSAs for companies and consumers.


***The IRS has established rules for HSAs, which provide that:
•
The HSA is a high-deductible health insurance plan with a minimum deductible of $1,050 for a single person and $2,100 for families.
•
Maximum out-of-pocket expenses are $5,250 for individuals and $10,500 for families.
•
Accounts are portable from one employer to another.
•
Funds can accrue from year to year; there is no use-it-or-lose-it rule.
•
Employers, individuals and family members may contribute.
•
Contribution limits allow up to 100 percent of the health insurance plan's deductible, but not more than $2,700 for an individual or $5,450 for families.
•
Withdrawals for qualified expenses and interest earned aren't subject to federal income taxes; employer contributions aren't included in gross income, and employee contributions are deductible from federal income taxes.
•
HSA contributions may be invested in a variety of savings and investing vehicles.
For Devon Herrick, a senior fellow at the National Center for Policy Analysis and author of several studies on consumer-directed health care, the fact that you can build up funds in your HSA and take them with you to another employer are major pluses.
"If you and your employer regularly contribute to an HSA and you don't use up these funds every year, by the time you are older and are likely to need more expensive tests and health care, you can have a healthy nest egg built up," he says. "If I invest the money in my HSA starting now -- in my mid-40s -- I could have $100,000 in it by the time I retire."

As banks and brokers catch on to the investing potential of HSAs, more are offering accounts with a variety of stock and bond investing options.

Many experts, however, agree that it is unwise for consumers to invest money in the stock market that they may need in the next five years. If invest your HSA money in a stock mutual fund, you could find that you need the money to pay for an expensive medical test and have to take the money out when the fund isn't doing well. Such investments also carry fees, which directly cut into the returns consumers earn.
Consumers who need regular, ongoing care for chronic conditions such as diabetes might have more trouble than the average consumer, in terms of paying for their care through HSA savings, Collins says.
"In consumer-directed health care there is no real provision for people with chronic conditions who need regular treatment and medication," she says. "In our survey we found reasons to be concerned that these people are less likely to get needed care because of the cost and will either not fill prescriptions or skip doses. Then they will end up with more serious medical problems down the road."
Tools to navigate the systemIn order to make the best use of a high-deductible health insurance plan and an HSA, consumers need access to tools that help them select health care providers, figure out a reasonable cost for different types of care and deal with the medical claims process. Many of the larger health insurance companies include a component that helps consumers determine the cost of common medical procedures and drugs.
However, if your employer offers a bare-bones policy or you are self-employed, you're on your own. In that case, you'll have to navigate the system yourself or spend money on the many Web sites and services that various companies are rolling out to take advantage of this trend in health care. These offer tools and help in deciphering your plan's benefits for a yearly fee, typically a couple hundred dollars.
Herrick contends that there is a good deal of information available on the Internet and on drugstore shelves to help cost-conscious consumers make better and cheaper health care choices, including information on generic alternatives to branded drugs; home testing kits for strep throat and other infections and e-mail interaction with doctors rather than more expensive office visits.
Collins disagrees, saying that the information available isn't that easy for busy consumers to access. "There is very little price and quality information out there, which means consumers have to make decisions with very little information."
And many consumers have little experience in navigating the ins and outs of insurance-policy claims and aren't savvy in terms of appealing claim denials and even understanding their policies and knowing their rights.
The bottom lineWhether consumer-directed health care actually saves money in the long run and catches on with companies and consumers is still open to debate. A study by the Deloitte Center for Health Solutions found that consumer-driven health care costs rose 2.8 percent in 2005, versus 6.4 percent to 8.5 percent increases for other more traditional health insurance plans.
Collins believes that consumer-driven health care imposes more inefficiency on an already inefficient health care system.
"There are a lot of administrative burdens on consumers and companies with HSAs and all their regulations and the other issues that employers have to explain and employees have to understand," she says. "There are lots of other ways to improve health care transparency and quality and save money that are more efficient."

For more information on your health insurance plan,please contact Branch-Hernandez & Associates Insurance Services at 702-648-6887