The biggest HSA myth
May 21, 2008 by Bill MeltzerPosted in: Health Savings Accounts, In this week's e-newsletter, Latest News & Views, Uncategorized
When it comes to health savings accounts, you have to separate the hype from the reality. One of the big myths: a high-deductible plan with an HSA means lower premiums.
In truth, it varies. In some cases, an HSA-eligible plan may cost the same as a non-HSA high-deductible plan. In others, the premiums can actually be more expensive, a recent NHPI report finds.
As a matter of fact, a non-HSA plan offering similar coverage can carry a monthly per-employee premium that’s about $15 to $25 lower and a deductible that’s $500 to $1,000 lower than the HSA option.
Sometimes the difference is due to price-jacking: The HSA plans are the ones that’ve been hyped in radio commercials and mentioned in newspapers in recent years. Nowadays, fewer people exploring high-deductible plans ask first about the non-HSA, so insurance companies sometimes slash prices to drum up interest in those options, too. Another factor: Not all deductibles work the same.
Deductible cuts both ways
Two deductibles can look similar but work differently, and the cost scales can tilt in favor of either an HSA or a non-HSA plan. Example: HSAs by law can no longer allow first-dollar coverage of prescription drugs. But a non-HSA plan can.
On the flip side, HSAs often feature better preventive-care coverage. In some non-HSA plans, a person who has yet to meet the deductible must pay out of pocket for standard tests (example: cholesterol testing) that’re part of the routine physical. Only the office visit itself is covered.
Also, HSA-eligible plans have to follow rules that limit total out-of-pocket costs. But this can push up the premiums paid on the front end.
Best bet: Double-check with your broker to make sure you’re comparing apples to apples when reviewing the costs of HSA and non-HSA plans.
May 22nd, 2008 at 10:00 pm
You are correct!
When comparing similar deductibles you don’t always find the significant premium savings that HSAs are supposed to deliver. Typically this is because the deductible is only one of the moving parts. I like to talk “out-of-pocket maximum”. This term includes not only the deductible but also the co-insurance (the 80/20 part) and co-pays. Most insurance companies do not include co-pays when they calculate your “out-of-pocket maximum” (see http://hsaguy.wordpress.com/2008/05/01/do-co-pays-really-make-sense/).
If a fair comparison of “out-of-pocket maximum” happens, there is usually one of 2 findings:
1. The HSA qualified plan is offering a lower “out-of-pocket maximum” for a similar price
2. If the “out-of-pocket maximum” is similar, the HSA qualified plan costs less.
Although co-pays have risen sharply (remember $5 generic, $7 name brand?), there is still some cost to the insurance company for co-pays. One insurance executive told me overall the co-pay portion covers 80% on average with the insurance company responsibility being the remaining 20% of the bill. If a co-pay based plan has a similar “out-of-pocket maximum”, it should cost more.
Of course each insurance company seems to price their HSA qualified plans significantly different.
If you aren’t finding the premium savings you expected, you might need to find another independent insurance broker that specializes in HSAs and is willing to look at all the insurance companies.
September 18th, 2008 at 11:24 am
When comparing HSA qualified plans with non-HSA qualified plans, don’t forget to look at the big picture, including the fact that you can fund your deductible with pre-tax dollars! Although your premium might be greater, this savings may more than offset that difference. Plus, you can grow that money by investing it, although there is risk involved. Once you reach the eligible age, you can even take a distribution without penalty. My point here is that a careful analysis includes more than looking at deductible amounts and premiums.