By Nancy Aita
HMOs were wonderful in many ways, but they really weren’t insurance. Insurance, according to the dictionary, is “coverage for those losses for which you do not have enough resources [that is, money] to pay.” In other words, you pay a premium each month so someone else can cover those losses you can’t afford.
We all have car insurance, and all our policies have deductibles. The only time you call your insurance company is when you have damages that are higher than your deductible. Certainly, for a flat tire or a new battery, you wouldn’t call your insurance company to cover the loss. But when you have an accident, and there are major damages to your vehicle or someone else’s, then you call the insurance company to intervene on your behalf.
We need to start thinking of health insurance in the same way. If you have a cold or a sore throat, take a couple of aspirins, drink a lot of water, and get plenty of rest—don’t call your doctor so your insurance can pay for a visit. If you don’t get better, then of course, go see your doctor. We need to rethink how we use our insurance coverage to get the most out of it while keeping costs down.
Today, health insurance premiums are rising faster than the Consumer Price Index (CPI). This means U.S. employers, who today provide almost 60 percent of all health care coverage in this country, are faced with a dilemma: Should they continue to offer the same insurance, which has seen up to 40 percent increases over the last couple of years? Or should they opt for a plan that gives excellent coverage, but requires employees to make smart decisions about where and when to go to a doctor or facility for testing, and which ones are the best and most cost effective?
The good news is, we now have real ways to stop escalating health care costs and put some real control in the hands of the employees, aka the consumers. I’m referring to HDHP (high deductible health plan) insurance plans, HRAs (health reimbursement accounts) and HSAs (health savings accounts). Here’s a brief overview:
HDHP: High deductible health plans will typically pay for one basic, preventive care appointment annually, but all other health expenses (including prescriptions) are paid by the policy holder until a very high deductible is reached. The 2009 minimum deductible for an individual is $1,150, and for a family, it’s $2,300. Some HDHPs have higher deductibles than the minimum, which results in smaller monthly premiums for the employee and cost savings for the employer. To meet these higher up-front fees, HDHP participants are eligible to set up a Health Savings Account (HSA).
HSA: These accounts can be funded by both employer and employee, but these are employee-owned accounts—and all money in them belongs to the employee, regardless of who funds them. HSA money can be withdrawn to pay for the HDHP deductible or allowable medical expenses. Think of them as a medical IRA: They’re federally tax free, and the amount put away each year can be a straight deduction on federal taxes from gross income. What’s more, unused funds can remain in the account at year’s end and won’t be counted as part of new contributions up to the annual maximum (for 2009, it’s $3,000 per individual or $5,950 per family, with individuals over age 55 able to contribute an additional $1,000).
HRA: Health Reimbursement Arrangements are similar to HSAs, with one major difference: HRA money is only employer-contributed money and, at the end of the year, the unused funds remain with the employer. By arrangement, the employer will use HRA funds to reimburse specified out-of-pocket medical expenses, including paying down some of the HDHP deductible, after they’re incurred. These plans require the use of a third-party administrator (TPA).
A qualified TPA can help sort through the choices and also administer the self-funding part of any HRA. When searching for a good TPA, ask for in-person client references and, since good organization, record-keeping and reporting capabilities are essential to the job, request copies of the reports they produce for their clients and determine the frequency with which the reports are generated. There are many resources available for all these different plan designs, and having an idea of what you need makes navigating them much easier.