Health Savings Accounts: a better choice for health insurance for us healthy folks
Posted Jun 17 2009 6:32pm
Like many of you, I agree with most of what Susan Schenck had to say in her article about losing health insurance. And like many of you I also had a "but" to add to the article.
I'm young, I'm healthy, I feel great and I don't visit a traditional doctor or dentist regularly. I plan on living a very long time and degenerative diseases like cancer, heart disease and diabetes are so incredibly far off my radar.
The health practitioners that I do see every so often aren't covered by health insurance in general, so the only real value of having health insurance is to protect myself in that rare situation. You know, car accidents, bike accidents, durian accidents and things like that.
In her article Susan stated, "Yes, you might want to get a very high deductible insurance in case of accidents." I agree. There is value in having high deductible insurance coverage. With high deductible coverage you are still protected from the rare event, but you also have access to low premiums, making the insurance much more affordable.
The best high deductible insurance coverage that I have seen, and that I personally have, is a Health Savings Account, also known as an HSA.
HSAs were not only designed to provide insurance coverage, but they also provide a tax-advantaged medical savings account. This means that any money you put into the HSA account, up to a certain limit each year, rolls over and grows tax-free, year by year. At the age of 65 any money that is in your HSA account is yours, 100% tax free. Cha-ching.
Now, the money that goes into your HSA account is not the same as your premium. Your premium still goes to the insurance company. And to give you some idea, as a single insured person my premium is around $98 for a $5000 deductible. This means that I have to pay 100% of the cost of any medical expense that I encounter under $5000. But that's perfect for me since I don't have any medical expenses right now at all and I don't plan on having any regular medical expenses in the future either. Now, if that durian accident happens and I end up with a hospital bill of $25,000, my HSA insurance coverage covers 100% of the cost above $5,000, (I have to cover the first $5,000).***
Are you with me so far? Just so we are clear let me review.... So every month you have to pay a premium to your insurance company, that's standard. But in addition to paying your premium you have the option of putting in up to a certain amount into a tax-advantage HSA account. In 2009 that "certain amount" is $3,000 as a single person, and $5,950 as a family. Every year the amount goes up a little bit. The money that you put in that HSA account grows each year and essentially becomes a retirement account. At the age of 65 you can take it out 100% tax free.
When you put money into your HSA account you have the option of paying for small medical expense with this money. Basically you'd be paying for anything under your deductible amount. In my case my deductible is $5000. I could use my HSA account money, if I needed, for things like the eye doctor, glasses, laboratory fees, acupuncture and a few other things. Any money that you spend on approved medical expenses from your HSA can be tax-deducted at the end of the year.
If you are healthy, if you plan on staying pretty healthy and if you are willing to be smart about your money, HSAs are the way to go for insurance. If you don't plan on getting any insurance at all that is up to you, but I personally think durians and ceramic knives are pretty sharp!
Don't go out an buy an HSA today without getting educated. Learn about it, ready about it and then, only then, if it feels right feel free to move forward. And only buy an HSA plan from an independent insurance broker who is not affiliated with any one insurance company. Independent brokers can shop around and get you the best price.
Here are a few resources you can check out to help you further your reading.
Question: Do you currently have insurance? If you do what kind do you have? If you don't, would love to hear more about that too!
Update 1: My friend Jainy Savla had a great point on facebook. Number one cause of death for young adults is "unintentional injury". A good reason to have insurance.
Update 2: I incorrectly shared a deductible analogy here, thanks to Terry for pointing it out in the comments. I've updated it on this post. Sorry, I must have been smoking raw cacao.
Note: Funny thing is we have President George W Bush to thank for these HSA accounts. On December 8, 2003 President Bush signed the Medicare bill which created the HSA accounts. Probably one of the smartest things he did in addition to doubling the size of protect area in America. Anyway, I figure I ranked on Bush enough in my life that I might as well give him credit where credit is due. This isn't the best system ever, but for insurance it is the best system we have right now.