Rethinking health care

With costs of health care skyrocketing nationwide, Schlitz suggested I talk about health savings accounts, also known as HSAs. This post assumes you have a minimal knowledge of health insurance. An HSA is similar to a Flexible Spending Account (FSA) offered by most employers, where pre-tax dollars go into an account to spend tax-free on medical services and items. The difference is all FSA dollars must be spent in a year, whereas HSA dollars rollover from year to year, meaning over time, quite a bit of money can accumulate in the account to be spent on health care later on in life. Additionally, the HSA can earn interest each year, and can possibly be invested in the stock market (I know, risk right now). To get this tax benefit, an HSA must be coupled with a high deductible health plan (typically a PPO or HMO).

While all that mumbo-jumbo sounds nice, how does an HSA benefit you the consumer? First off, HSAs give the biggest benefit to healthy people who rarely use health care, but the principles can apply to anyone. Say you have a traditional PPO at work, where the premium is $300 a month and you pay $100 out of pocket, meaning your company pays $200 a month. A high deductible (say $5000) PPO might cost $100 a month, leaving $200 to go into the HSA. After 1 year, you have $2400 in the HSA. If you go to the doctor once per year, you will use a minimal amount from the HSA, allowing the HSA to accumulate year after year, possibly letting you acquire a large amount of money in your older years, when health expenses are higher. If you do get very sick and need expensive procedures, you have coverage once the deductible is met.

Of course, there are downsides to HSAs. The first being that you take upon more risk in the beginning as there is no money in your HSA and the the initial deductible must be met out of pocket. HSAs are difficult to explain to people used to a traditional health plan. And it assumes that people will act rationally with funding their HSA and choose conservative investment options, which if recent history is any indictation, cannot make responsible decisions for themselves. However, once you get past those issues, the upsides are enormous.

What did you think? Do you wish your work offered an HSA? Are you against the idea? Share your thoughts below.