Taking the Plunge
I've been writing about these plans for several years. Here are some of the previous columns:
- (Almost) Free Health Insurance (Oct. 8, 2010).
- High Option (Nov. 13, 2009)
- High Interest (Oct. 31, 2008)
This week, I'll present the story of one of my readers who ventured into the land of high-deductible health insurance, driven by increasing premiums in her health maintenance organization. Depending on where you live, HMO plans can be very expensive due to their comprehensive coverage of benefits with little out-of-pocket expense. This tends to make them attractive to people who are in poorer health, which drives up premiums.
If you're looking for an alternative, consider choosing a high-deductible health plan. Such plans are intended to cover serious injury or illness and include benefits for preventive care. With the exception of such care, the relatively high plan deductible must be met before benefits are paid. If you don't have other health insurance (through Medicare, TRICARE or your spouse's employer), then you also can contribute tax-free dollars to a health savings account. That's what my reader Jeanie did.
"A year ago," she wrote to me, "you helped me to make the decision to change my federal health insurance to a high-deductible plan. I had been in Aetna HMO for years, but I was looking for a way to reduce expenses since we no longer get an annual pay raise. With your encouragement, I made the leap for the 2011 year. At this point, I believe I made a good choice."
For starters, Jeanie saved $394 in premiums by switching from Aetna's Open Access option to its HDHP. Also, Aetna made deposits into a health savings account (in what's known as a "premium pass-through") to the tune of $62.50 a month, or $750. That increased her total savings to $1,144.
If you have other health insurance such as Medicare or TRICARE, you will have a health reimbursement account instead of an HSA. This account will receive the insurer's contributions in one lump sum at the beginning of the year.
The difference between an HRA and an HSA is that you are allowed to make tax-free contributions to an HSA. Jeanie made the maximum voluntary contribution through payroll deduction, but you also can do a direct transfer from a checking or savings account or simply mail a check. The maximum self-only contribution allowed for 2011 was $2,300, plus a $1,000 catch-up contribution for those older than 55. For self and family enrollment, the amount was $4,750, plus the $1,000 catch-up contribution for those eligible. These contributions will vary for different health plans based on the amount of the premium pass-through.
The money in the HSA account belongs to you and it earns interest. It's different from a flexible spending account in that you don't have to use the money each year, but can accumulate it to build a cash reserve to cover future medical expenses.
Coming Out Ahead
Jeanie was fortunate and has not had any significant health problems this year. She did go to various in-network doctors for routine preventive exams, for which there was no additional charge. She spent a total of $240 on items such as prescription refills, a primary care office visit and two fluoride treatments at the dentist. She would have been responsible for any additional expenses until she reached her $1,500 deductible. She did have some issues related to lab tests. In order for Aetna to tell her how much a particular test would cost, she had to know the procedure code for the test and the tax identification number of the lab. These weren't easy to get. She also ended up having to make some decisions about tests after consulting with her doctor. For example, she learned that a Vitamin D blood test would cost $215, with no discount from Aetna. She decided she didn't need the test.
On the whole, Jeanie was very satisfied with the HDHP. She came out way head financially this year. She now has a significant amount of money in her HSA so even if she has high health expenses next year, she can pay for them with tax-free money. She's sticking with the HDHP for 2012.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.