HSA plans on the rise

Choosing the Right Health-Care Plan

Excerpt:

At General Electric, rising costs are helping drive a conversion to high-deductible plans, which tend to have lower premiums and may prod employees to seek out cheaper forms of health care. One plan, for instance, has a $1,600 annual deductible for a single person, along with premium contributions and annual caps on out-of-pocket payments that vary according to the employee's income.

All of the plans offered by GE are paired with accounts that workers can use to cover the cost of the deductible, either a health reimbursement account to which the company contributes, or a health savings account (HSA) to which the employee contributes. Both can accumulate money tax-free.

Next year, such plans will be the only option for the roughly 300,000 active employees and dependents who receive coverage from GE. "We needed to do this to remain competitive" by starting to rein in health-care costs, says Ginny Proestakes, director of health benefits at GE.

Smaller employers like Watauga County, N.C., are following suit. The county will put all of its 280 employees and retirees into high-deductible plans. The county has seen a falloff in revenue from sources such as sales taxes because of the slow economy, while health costs continue to mount. "It's fundamental economics," says Deron Geouque, county manager. "We can't continue to absorb those increases."

The transition to a high-deductible plan can be abrupt for people like Debbie Jankowski, 38 years old, a school counselor in Racine, Wis. When a new contract with the school district kicked in July 1, the deductible for her family of five went from zero to $4,000. The midyear changeover didn't allow a chance to add more money to her tax-free flexible spending account or start up an HSA, she says: "It was such a shock."

Comment: My company's 2012 plans are high deductible.

HSA: The "Two Insurance Companies" Concept.™

How an HSA Insurance Plan Works

Excerpt:

The best way to think about a health savings account plan is to envision TWO insurance companies working in conjunction to insure your healthcare. You own the smaller insurance company which primarily is funded by contributions to your health savings account - this is a form of self-insurance but you only are on the hook for the smaller, routine medical expenses. You purchase an insurance policy from a reputable, highly rated insurer to cover larger, unanticipated medical expenses, subject to a high deductible (this plan design must comply with IRS Rules).

Self-insurance - for smaller, routine expenses. Because you are responsible for routine medical bills under the deductible amount, you effectively act as the insurance company for the smaller expenses. Stated differently, you are self-insuring the routine medical expenses. Contributions to your HSA savings account serve as "premiums" you pay to yourself to fund your self-insurance program, and the Government gives you a substantial tax-break for doing this. Just like an IRA account, every dollar you contribute to your HSA savings account is 100% tax-deductible. And just like an IRA, all funds in the account always are yours to keep - what you don't use to pay medical bills each year "rolls over" from year to year and actually goes to supplement your retirement at age 65.

Traditional insurance - for the "big stuff." A traditional insurance company assumes the risk of expenses above and beyond a "high" deductible you select. You pay premiums to the insurance company to assume the larger risks over the deductible amount you choose. The larger the deductible, the lower these premiums will be. Just like with any other insurance policy you own, your premiums are paid direct to the insurance company - they are not related to your HSA savings account in any way. If you are self-employed, premiums may be tax-deductible.

Comment: Coming in '12 for Kathee and me.