My Blog

In the last several months, I've had several discussions about medical insurance, specifically about the Heath Savings Account and what it means to the folks looking for private insurance. Here is what I've learned about this.

Please note that I am not an expert in this area; this is just some info I've collected from my personal experience. I have tried to be as accurate as possible, including #'s, but I am relying on memory for a lot of this stuff. When I was looking for info on private health insurance (or medical insurance you buy on your own and not through your company), I was surprised at how little (useful) info was available. So here goes.

1. My experience may not reflect yours. Like buying car insurance, they ask for your zip code. And of course there are scores of MBA and spreadsheets that zero in on how your race, age, existing conditions, and the like affect your price and options. If you find a better experience, let me know.

2. My situation: I'm a healthy Asian male, mid-late thirties. Wife + 2 kids. Some pre-existing conditions, but no chronic really-bad-stuff. Applying for any private insurance is a long process of digging up a lot of stuff from your medical past. I recommend setting aside a few months for the process.

3. In Texas, I found two main options that appealed to me. Aetna and Unicare. I applied for and got accepted by both (yes, they can reject you, include exclusions, and/or make you pay more than the published rate). At each provider, there were several options available. Both were generally helpful in guiding me towards the options that made sense for my family. However, like all things like this, DO YOUR OWN MATH. You know your risks and situation better than a salesperson or a web-based "let us help you choose" form.

4. When I was with a "big company", I was paying $250 a month for my family insurance. This was for PPO, with a pretty good co-pay. My out-of-pocket costs were very manageable, and there was very little filing I had to worry about. After I left, I signed up for Cobra (in Texas, laws require a company to offer COBRA for 18 months). COBRA is basically the same sets of options from your employer offered to ex-employees "at cost". I ended up paying $950 a month (yikes!) for effectively the same coverage as before.

5. As COBRA was running out, I found private insurance at about the same cost. It was similar coverage with a few exceptions. The biggest exception I remember is that pregnancy was NOT covered. I did this for a year. I was getting tired of paying close to $1000 a month for insurance. We are healthy folks and I started shopping around.

6. I was introduced to something new called a Health Savings Account. This is like a Medical savings Account with a few key differences. I never had a MSA; it didn't really appeal to me. But the HSA has some stuff that makes it very attractive to me. Here are the highlights.

a. You (or your employer) put money away in your (or your family's) HSA. The amount is tax deductible up to a certain amount (around $2,500 a year for individuals, around $5,000 for families -- the exact amount of tax-deductibility is explained IRS-style in IRS Publication 969). Depending on your tax bracket, this can save you $1000-$1800 in taxes. The HSA is managed through a bank (mine is with Chase), and it acts like a normal debit-card-type account.

b. You can use the amount in your HSA on qualified Medical and Dental Expenses (read all about it in IRS Publication 502!). Here's the key difference between a HSA and an MSA. MSA requires you to spend the entire amount every year. No so for a HSA. Your contributions "roll over". If you are healthy and have no need to spend down this account, this effectively becomes another tax-deductible retirement account that can grow quite big. You can spend it years later for any medical expenses, or receive tax-free distributions for non-medical purposes if you become disabled or reach age 65.

7. Here's the catch: You can only take advantage of the HSA if you are in a "High Deductible Health Plan" or HDHP (when you shop for insurance, the providers will tell you which plans qualify as a HDHP). These plans generally work like this: Premiums (monthly costs) are mush cheaper (I now pay $400 a month). They cover annual checkups with a low co-pay. But you have to cover your own costs otherwise, until you hit a "high deductible" (typically around $2500 for individuals or $5,000 for families).

8. Paying a few thousand dollars each year for health care sounds crazy. However, I am saving $500+ a month in premiums ($6,000 a year!), and I get tax benefits (let's say $1,500 a year). And you can still qualify for the "negotiated rates", which is much less than the "listed rates" for health care costs. Also, if I stay healthy, and I have no need to for anything beyond the basics, I don't have to spend from my HSA. If something horrible happens and I need severe medical care, after I reach my deductible, I am basically covered for all medical costs after that.

9. The logic for allowing us to do HSAs with a HDHP goes something like this. Health care costs have gone crazy, and it looks like it will continue to do so. Many of us are relatively healthy and have the means of coughing up a few thousand dollars if we were to say, break an arm. Allowing the consumer to think more about the direct costs will make us shop around or do the smart thing, such as do more preventative care. I think this makes sense. Unfortunately, from what I pick up from the media, these HSA+HDHP's have not been as popular as anticipated.

10. Some downsides. It takes more work. Since I am paying "more" for each incremental visit to the Drs, I find myself looking over the paperwork and checking the math much more than with a traditional co-pay PPO. Also, if you don't save in your HSA, you're not really taking full advantage. This takes discipline, and may not be a good idea if you are not already saving in your other retirement accounts.

11. Upsides. If you (or your family) is relatively healthy, and you have the means to put away a few thousand dollars a year (and want to save in taxes), and have the ability to absorb a limited unexpected medical bill, this set-up is great for you. And of course, much cheaper insurance premiums.

12. Additional note. From what I understand, a HSA+HDHP is also available thru an employer, although the economics will be different (probably better, since the employer may actually fund your HSA as well).

Good luck!