How to Evaluate a High-Deductible Healthcare Policy

According to an August survey from America’s Health Insurance Plans, an industry trade group, as of January 2010, 10 million Americans were covered by high-deductible health plans with a health savings account (HSA) feature. That’s up from 8 million in January 2009 and 6.1 million in January 2008.


A 2008 report by the Kaiser Family Foundation and the Health Research & Educational Trust pointed out that the number of workers with high-deductible plans has nearly tripled in firms with fewer than 200 employees between 2006 and 2008 to a total of 11.7 million.

The advantage? These companion policies allow individuals and families to keep monthly premiums relatively low while being able to deposit pre-tax dollars into its companion HSA account that allow account holders to use those pre-tax dollars to pay out-of-pocket medical costs. Earnings on those accounts are also tax-free as are withdrawals used for qualified medical expenses.

But is this choice right for you? Here are some considerations:

Numbers you need to know: HSAs are only available with qualified high-deductible health insurance policies. To get the combo, you must be enrolled in a qualified health insurance plan with an IRS-required deductible of at least $1,200 for an individual or $2,400 for a family. This year and in 2011, individuals may contribute a maximum of $3,050 to an HSA and families can deposit up to $6,150.

Assess the health plan properly: Check lifetime limits for claims (don’t go under $5 million) and make sure the health plan provides first-dollar coverage on preventative care because the new healthcare law requires it. Regular preventative care may end up in significant savings. If you have a particular health history, it may be tougher to qualify for that insurance.

Note the fees: HSA accounts are offered at banks and other kinds of financial institutions. You’ll be charged a onetime setup fee of anywhere from $25 to $75 and annual fees that might be as much. Since these are investment accounts, fees might potentially eat up any gains you’ll earn, so keep them as low as possible. While many employers pick up these fees, self-employed people are generally stuck with them.

Check the investments: Assess the investments in your HSA just as you would a mutual fund or CD (you’ll have a range of investment choices). Whatever option you choose, check what commercial returns are and see if your investment will be competitive. But remember that this account needs to be something of an emergency account to cover your deductible and any other medical costs. So you’ll have to balance higher earnings against safety.

Keep good records: It’s important to track all medical spending from these accounts and to make sure they’re qualified. That’s a particularly important thing to do with upcoming changes due to the health reform law – non-prescription medicines won’t qualify after January 1. Also, weigh carefully the decision of asking a doctor for over-the-counter antacids and pain relievers – some health insurers may accuse you of failing to report a pre-existing condition, which could lead to them dropping your coverage.

Price procedures: If your HSA is going to cover any uninsured procedures or uninsured portions of healthcare costs, make sure you’re comparing costs for procedures. It’s always OK to discuss prices for various procedures with doctors – and to walk away from doctors who won’t discuss them. There are also online resources that might help you make a decision including Healthcare Blue Book [http://www.healthcarebluebook.com/page_Default.aspx], a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

Watch how you spend HSA funds: Health care reform in Washington has changed the rules on what may be paid for out of funds in HSAs as well as flexible savings accounts. As of Jan. 1, 2011, over-the-counter medications will no longer be considered eligible medical expenses, and the IRS has a full list. Also, there are some insurance premiums that may be eligible medical expenses, including some long-term care insurance plans.


December 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.