Wednesday, October 04, 2006

Observations on one type of consumer choice health plan

Medical insurance will in the relatively near future move away from traditional plans with office visit co-pays or small deductibles to what is perhaps best called consumer choice health plans such as a Health Savings Account (HSA).

Individuals with medical insurance from an employer or a plan they personally purchased are able to select an HSA and will have coverage which provides a much better value.

Why is an HSA a better value? Medical insurance plans with co-pays hide individuals from the real cost of the treatment they receive. This causes the reaction “someone else is paying” thus people tend to use their coverage more and are not careful shoppers. HSAs are a step toward changing this by helping individuals become better consumers of medical care.

Why do they become better consumers? Research tells us - individuals with HSA’s get involved in treatment details because it’s their money and just as importantly they want effective care!

How can they get involved?
One way people can become better consumers of medical services is to ask MDs what the suggested treatment will do and what other approaches could be used.
Another easy to do and important approach is to ask the MD about generic medications – they are the same as brand names but less expensive.
BTW - Getting involved means a person receive improved quality of care!

How is an HSA different? The medical treatment expenses a person may have would be paid in two ways.
The first part uses an easy to use debt card connected to a special savings account to pay day-to-day medical treatment expenses. The best way to think about the money in this account is that it’s an individuals financial protection for the routine expenses they may have.

Note (1): This special account is “owned” by the individual and it’s portable. Funds can be used to pay for any treatment expenses before the HSA plan’s insurance coverage begins such as going to the doctor when you are sick and getting medication for two weeks. Other medical related expense listed in IRS Section 213(d) e.g. eyeglasses and dental care can also be paid from this account.

Note (2): IRS regulations tell us contributions into this special medical expense account can be made by the employee, the employer or both and deposited regularly by payroll deduction or periodically. Contributions are limited each year to the level of risk (deductible) of the HSA major cost coverage plan but not more than $2,700* for Single & $5,450* for Family coverage during 2006. Funds going in through payroll are tax free, they grow tax-free, and come out tax free when used for medical expenses. Amounts remaining at the end of the calendar year stay in the person’s account. Contributions other than by payroll deduction become an above the line deduction, at tax time, and are also tax-free.
[ * Based on being eligible for 12 months.]

A good way to think about the second part of the HSA program is as major cost insurance because it’s financial protection for situations when someone has significant medical expenses. In one sense, HSA’s are a return to the real purpose of insurance – coverage for unexpected medical expenses.

The major cost insurance, which is called in the IRS regulations a qualified HSA High Deductible Health Plan (HDHP), works this way:

Medical treatment expenses whether from a primary care or specialist office visit; diagnostic work; medication; outpatient surgery and procedures; or hospitalization are all combined and apply toward an annual deductible of say $2,000 for Single & $4,000 on an aggregated basis for Family. IRS regulations set the minimum deductible for single coverage in 2006 to be $1,050. A maximum deductible is not defined but instead the maximum out of pocket expense for a single person in 2006 is $5,250.

Note: IRS regulations allow for an exception to all expenses going toward the deductible for preventive care treatment such as the age based preventive care visits. They have no cost.

Please post any questions or comments.

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