Health Savings Accounts are gaining
importance with the self employed
IMPORTANT POINT: By far, the most common misconception about the
new Health Savings Account Plans is that people can just use
their existing health insurance policy because it happens to
have a “high deductible.” In most cases, this is incorrect—the
law requires a specially defined type of insurance policy, known
as the HDHP (high deductible health plan). Although it “sounds
like” an ordinary policy with a “high” deductible, that is not
the case. The required HDHP policy has special features not
found in most policies issued prior to the advent of the HSA
(except for the MSA-qualified policies).
You must be sure you have an HSA-qualified policy! Our national
network of insurance agents specialize in these policies.
Here’s the general rule of thumb: If you do not already have an
(old) MSA-qualified policy, you probably do not have an HSA-qualified
policy. We’ll be glad to help you analyze your current
policy—but be advised—chances are, you’ll need to consider
replacing your current insurance policy with a new HDHP properly
issued policy. We’ll be glad to help. (At the risk of being
redundant—that’s what we do! We do not make money helping people
establish the savings accounts only!)
When Congress originally designed the MSA law (in 1996), it did
so with the idea that each person or family funding a savings
account for medical expenses should always be required to carry
insurance as a back-up in the event a “catastrophic” type of
medical situation were to arise. We believe this to be a wise
requirement; otherwise, some individuals would be under the
false and mistaken impression that they could “save” their way
to financial freedom from the high cost of health insurance (ok,
that would be true if there never were any major medical
expenses incurred).
The insurance policy required—by law—is by its nature a
“catastrophic” type of coverage. It requires a “high deductible”
and allows no “co-pays” to be included in the coverage (at least
not until the deductible has been satisfied). This does not
mean, however, that the actual insurance policy only covers "big
expenses," i.e., those incurred in the hospital. In general,
most of the HSA-qualified policies are actually comprehensive
major medical policies that just happen to have a "high
deductible" to satisfy the HSA federal law mandates. NOTE: The
new HSA law actually allows for some preventative type of
expenses to be covered not subject to the deductible.
The size of the deductible depends on the number of people
actually being insured. If there is only one person to be
insured (an adult) then it is classified as a “single” plan
(even if the person is married). If the policy covers two or
more people, it is classified as a “family” plan.
With both the single and family plans, there is a minimum and a
maximum deductible amount established by Congress. Those numbers
are listed below for the tax year 2003:
| |
Minimum Deductible |
Maximum Deductible |
|
Single Plan |
1,700 |
2,500 |
|
Family Plan |
3,350 |
5,050 |
Here are
the new HSA numbers for the tax year 2004:
| |
Minimum Deductible |
Maximum Deductible |
|
Single Plan |
1,000 |
2,550 |
|
Family Plan |
2,000 |
5,150 |
With the new HSA law, the "maximum out-of-pocket" amounts have
been substantially increased. For singles, it is $5,000 and for
family plans it is $10,000 (indexed for future inflation). This
can be a source of needless confusion. The "out-of-pocket"
maximum is simply a combination of the deductible PLUS any
"co-insurance" AFTER the deductible. Example: Family plan with
$5,100 deductible that pays 80/20 of the next $5,000 AFTER the
deductible would have a total out-of-pocket of $6,100 in covered
expenses (20% of the next 5,000 in covered expenses is $1,000
PLUS the $5,100 deductible) . Remember, only covered expenses
count toward the deductible AND co-insurance.
IMPORTANT POINT: ONLY the deductible amount is factored in when
determining your maximum HSA savings account contribution for
the year. For this reason, it may not make a lot of sense to
substantially increase the out-of-pocket maximum too much beyond
the deductible--unless, of course, there is a significant
reduction in premiums!
INTERESTING TIDBIT: One of the most popular plans on the market
actually offers a "50/50" co-insurance option. It's popular
because it offers significant reductions in premiums while still
limiting the total out-of-pocket to a reasonable amount,
typically between $800 (single) and $1,200 (family) beyond the
deductible.
Important Note About The Family Plan Deductible
With the family plan HSA policy, the deductible takes on a
special feature—it is a per family deductible, and not “per
person”. Almost without exception, every other policy on the
market covering a family has a deductible “per person” so the
HSA plan deductible feature truly is unique…and required by law
(this is one main reason why not just any “high deductible”
insurance policy qualifies as an HSA approved policy). With a
“per family” deductible, covered expenses incurred by each
person accumulates and is credited toward the one “family”
deductible.
Why a "big" deductible is really "no big deal"
For an enlightening discussion regarding deductibles and their
use in health insurance, please click here to read an article
written a couple of years ago by C. D. Richard, a leading HSA
proponent with approximately 25 years experience as an insurance
agent specializing in small business benefits.
What type of expenses are actually covered under the policy?
Some people believe that because there is no “co-pay” that the
Dr. visits and Rx drugs are “not covered”. This is incorrect (at
least with most HSA-qualified policies--there are a FEW such
policies that allow you to "carve-out" certain out-patient
expenses, such as Rx drugs--our network of agents do NOT endorse
or recommend such policies). With most HSA-qualified policies,
Dr. visits and Rx drug expenses are “covered,” they are just not
reimbursable until such point as the deductible is satisfied for
the year (only covered expenses accumulate toward the deductible
so be sure you know what expenses are actually covered under
your insurance contract).
Other covered expenses generally include the same covered
expenses you would expect to be covered under a high-quality
comprehensive major medical policy, including but not limited
to, physician’s services in and out of the hospital, diagnostic
testing in and out of the hospital, hospital charges, surgical
expenses, transplants, etc. Of course, exclusions and
limitations apply. For instance,
dental and vision expenses are
typically not covered under the insurance policy (but are
allowable expenses for tax-free withdrawals from the savings
account).
Your customized proposal will include a link to the actual
benefits/limitations of the plan that our network-affiliated
agent proposes for you.
DISCLAIMER: Not every HSA-qualified policy offered in the market
place is the same! You would be well-advised to compare,
line-by-line, the numerous benefits, exclusions, and limitations
of each individual policy you may be considering. Quotes that
are returned by our network member agents will be from companies
believed to have the highest quality policy provisions on the
market, in addition to their A-excellent A.M. Best ratings (or
higher).
What about underwriting and “pre-existing” conditions?
Unless you are applying for employer-sponsored coverage, i.e.,
group insurance, your insurance policy will be an individually
underwritten policy. As such, issuance of coverage is subject to
underwriting on a case-by-case basis. Premiums and ultimate
offers are determined by the age, sex, location, and health
factors of each person or family to be insured—just as with any
other “individually underwritten” coverage. Depending on the
laws in your state, coverage for certain conditions may be
excluded or modified, a higher premium may be charged, or
coverage could be completely denied.
The good news is that because of the nature of the policy,
underwriting tends to be somewhat relaxed. Some conditions that
would be excluded under a traditional policy are often not
excluded under the HDHPpolicy, for instance.
Usually, there is no physical exam required; however, each
company reserves the right to request a physical exam (typically
a “paramed” exam) should they feel it necessary as a
prerequisite to assessing the risk. In most cases, underwriting
consists simply of the completion of an application being
forwarded to the company for review.
Today, more so than ever, insurance companies are taking a
hard-line approach to keeping future expenses in line. In
general, therefore, you should expect that most "pre-existing"
conditions will be ridered-out, or excluded, from coverage, at
least for a minimum period of time. Example: Existing
hernia--likely to have an exclusionary rider. EXCEPTION:
Exclusionary riders are prohibited by law in some states. In
those states, an insurance company may be more inclined to
simply DENY the application altogether.
Related Articles:
HSA Top 10
HSA Contributions
HSA's are Good News
HSA Overview
HSA Tax Shelter
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