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Do Consumer-Driven Medical Insurance Plans Make Sense for Everyone?


The cost of health care and associated insurance premiums have risen steadily for years. The consumer-driven medical insurance plan known as a Health Savings Account (HSA) in combination with a high deductible medical insurance plan (HDHP) can help manage the cost of insurance premiums. Under an HDHP, you must pay for all qualifying medical expenses until you have reached the deductible amount. You pay for these qualifying medical expenses through a tax-deductible HSA, and you also can use the HSA to pay medical bills not paid by insurance. Any money left in the HSA at the end of the year stays in your account and rolls over into the next year. 

Q:  What is a consumer-driven plan (HSA/HDHP) and why might I want one?
A:
  HSA/HDHPs allow you to take more control of your health care costs. You can substantially reduce your monthly health insurance costs or maintain the same costs and avoid risk by saving part of those costs to cover expenses. An HDHP still provides coverage for illness or injury, but you can save a substantial part of the cost you would normally pay for regular medical coverage by using a Health Savings Account (HSA) to pay the smaller expenses (e.g., office visits, Rx, etc.) along the way and having the insurance pay for catastrophic expenses. 

Q: I’m considering a consumer-driven plan.  Is it necessarily the best choice for me?
A:
 No. Before changing from normal coverage to an HSA/HDHP, consider what your premium savings would be and compare that to your projected out-of-pocket costs for normal routine care and the possible costs if a serious injury or illness occurs.

You might benefit from an HSA/HDHP if you normally have only limited medical care, and if you’re willing to become more involved in your own care, and shop around for routine medical services.
 
An HDHP also might be right for you if have a chronic illness (like diabetes), take many regular medications, or are often ill and see the doctor frequently. The co-pays, deductibles, and co-insurance costs for a traditional plan may be smaller in bits and pieces, but may well exceed the amount of the high deductible, making the HDHP an overall better buy. 

An HDHP may not be for you if you aren’t willing or able to shop around for your health care needs, don’t have the cash flow to front the cost of the deductible before the tax-free HSA can be fully funded, or if you prefer not to be involved in your health care.

Q: What are the advantages of a consumer-driven arrangement?
A:
 The two greatest advantages to an HDHP are cost and flexibility. Qualifying deductibles range from a minimum of $1,100 for a single and $2,200 for a family to $5,000 or even more. The higher the deductible, the lower the cost of the policy.  To cover these deductibles, you can open a Health Savings Account (HSA) that allows you to save money on a pre-tax basis to pay for deductibles and co-payments under an HDHP. Amounts remaining in the account at the end of a year are carried over indefinitely and you can stop making account contributions after you have reached the maximum amount you choose.

This arrangement is flexible because you can shop around for the best prices for goods and services that you are going to pay for under your policy deductible. For routine lab tests, prescription medications, medical supplies, and even some services, costs can vary widely depending on the supplier. 

Q: What are the disadvantages of this arrangement?
A:
 The two greatest disadvantages to an HDHP could be your inability to properly fund the Health Savings Account and the extra paperwork you’ll have to endure. Should you have a major illness or injury before your savings have reached your out-of-pocket maximum, you may be faced with large bills. 

With standard health insurance, most of the paperwork is done between the provider’s office and the insurance company. Under an HDHP you’ll receive and be required to keep track of bills, explanations of benefits, statements, receipts, co-payments, etc., if for no other reason than to be reimbursed from your HSA.

Q: Other than reducing my premiums, how can I save money with a high deductible policy?
A:
 The maximum out-of-pocket expense you can incur with an HDHP is capped just like a traditional plan either on a family or an individual basis. Once you have accumulated enough money in your HSA to cover your maximum exposure, you may choose to stop making contributions to that account and pocket or invest the money you would have been saving for health care costs.

6/7/2013

This Law You Can Use legal information column was provided by the Ohio State Bar Association. It was prepared by William J. Reynolds, an attorney in private practice in Cincinnati, and Peter Deist, president of FlexBank Administrators in Dayton. It was updated by William J. Reynolds.

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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