November 19, 2009

Should You Enroll in an HSA Insurance Plan?

Most of us have the option of picking a High Deductible Health Plan (HDHP) insurance plan with a health savings account (HSA). But it can be difficult to decide if an HSA plan is the right choice. You're often faced with confusing jumble of deductibles, premiums, co-insurance rates and out of pocket maximums. One way to figure if an HDHP with HSA or a traditional premium health insurance is your better option is to compare the minimum and maximum annual costs.

Figure your minimum costs for both plans

Your minimum costs would be what you pay for the monthly premium plus any known costs you may have. If you have no existing health conditions then your minimums may be nothing more than the monthly premiums. But many of us have some sort of minor or major ongoing health condition which has some known ongoing costs.

So basically: Minimum costs = Your monthly premiums + minimum known costs

Lets compare an example traditional plan and a HDHP/HSA plan.

Start with your monthly premiums. These should be stated in your plan literature.
Traditional plan = $450 a month premium = minimum cost = $5,400
HSA plan = $75 a month premium = maximum costs = $900

Then add any minimum known costs. Say for example that you take a prescription for an existing ailment which costs $50 per month. With the HSA this cost would be out of pocket but it for the traditional plan you may only pay a $10 co-pay. However for the HSA one detail is that the cost is coming out of pre-tax dollars so to figure your after tax rate you multiply by 1 - marginal tax rate. So in other words if you are in the 25% tax bracket then you would multiply your cost by 1 - .25 = .75. This is because you're really paying with pre-tax dollars so to compare that with after tax dollars you'd take out the tax equivalent amount.

Traditional plan = $10 x 12 = $120 after tax
HSA = $50 x 0.75 after tax rate x 12 = $450 after tax

Total minimum costs:
Traditional = premiums of $5,400 + prescriptions of $120 = $5,420
HSA = premiums of $900 + prescription of $450 = $1,350

Figuring Maximum Costs

The maximum costs could be more tricky to figure or might be pretty easy. If your plan documents a 'maximum out of pocket' cost then that is your maximum costs. Otherwise you can figure your maximum costs by adding your premiums, deductibles and any co-insurance up to its stated maximum.

Generally for maximum costs you'd have :
Maximum costs = Your monthly premiums + deductible + maximum co-insurance -OR - your stated maximum out of pocket costs.

Looking at the traditional plan you may have just : Traditional = premiums + deductible

Premiums of $450 a month = $5,400 plus a $900 annual deductible = $6,300

For the HSA it may have a documented 'maximum out of pocket' limit. That gives you a straight forward maximum cost for the plan. Again your HSA funds are pre tax dollars so you could figure your after tax rate by applying your marginal taxes to it.

HSA = stated maximum out of pocket = $6,000
Maximum of $6,000 pretax or x 0.75 = $4,500 after tax

Traditional maximum = $6,300 after tax
HSA maximum = $4,500 after tax


Look at both minimums & maximums

For the example plans here we have minimum and maximum costs of:

Minimums: Traditional = $5,420, HSA = $1,350
Maximums: Traditional = $6,300, HSA = $4,500

In this example the HSA is the cheaper option for both the minimum and maximum cases. Since the HSA wins in both cases its the better option.

1 comment:

  1. More and more individuals and companies are moving to consumer-driven health plans - HSAs + qualified high deductible health plans. With this type of health plan, you may be responsible for thousands of dollars in out-of-pocket costs. The problem is, consumers are not used to "shopping" for healthcare and don't now how to stretch their healthcare dollars.

    MyHealthandMoney.com is new website that my team is building to help individuals and families learn to shop for their healthcare. We've built comparison pricing tools so our members can do their research and figure out how much that test or procedure their doctor ordered is going to cost at facilities in their area. They can then choose the facility that meets their budget and quality standards. It's amazing to see the difference in prices and empowering to be able to choose!

    You can find also find discounts on prescription drugs and health services like blood work from Quest Diagnostics and counseling sessions from Pyschology.com.

    A membership to MyHealthandMoney.com only costs $4.99 a month. This cost is to help us remain independent and advertising free, while we work to negotiate discounts for our members. Our goal is to help people stretch their HAS dollars by learning to shop for their healthcare.

    Here are some ways you stretch your healthcare dollars:
    Save on health services including 15% off blood work
    Perhaps you’ve skipped a doctor’s visit because you don’t want to pay the out of pocket for a physical and bloodwork. There’s a lower cost alternative – go to the lab. Quest diagnostics is the world's leader in diagnostic laboratory testing, information, and services. As a MyHealthandMoney.com member, you can save 15% off any of their health screening test including a Comprehensive Wellness Screen which includes 29 tests including heart, diabetes, and whole body tests. A friend recently went to their doctor and was charged over $600 for annual bloodwork plus the cost of the doctor’s visit. Call and ask your doctor’s office how much the fees for your exam and bloodwork will be. If the estimate is over $100 consider getting the 15% discount and going to a Quest location near you – the cost will be about $100 or less, depending on the test you choose.

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    Does your health insurance include a pharmacy benefit? If not, you’ll find significant savings over customary drug prices and Internet pharmacies at MyHealthandMoney.com’s partner pharmacy, PBM Plus. It’s not the simplest of checkouts – you’ll need to complete a couple forms and mail, fax or call in your prescription, but the savings can be significant.
    Take a 90-day prescription of the popular ADHD drug Concerta. Here are prices as of today 11/24/2009 from major online pharmacies for Concerta 27mg 90qty:
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    If you include the $4.99 membership price which comes to $347.20, you still save $57.74 using MyHealthandMoney.com’s mail-service pharmacy.

    Compare prices on diagnostic tests and hospital procedures
    There are several sites coming online that claim to offer transparent pricing tools. The only trouble is, many of them are based on Medicare data, which is not the “retail” price or the price that could be charged to your insurance company. MyHealthandMoney.com staff has called hundreds of facilities to get accurate retail prices and applicable discounts for diagnostic tests in your area. You can see sample data that shows typical price variations before you actually sign up and use the tool.

    Knowing the prices of tests and procedures before you get the bill is an important first step in making smarter healthcare spending decisions and stretching those HAS dollars. Think about how many times you have gone in for an exam or procedure and have been surprised by the bill. It is your responsibility to find out the cost of your treatment – after all, you are the one responsible for paying for it!

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