Question
New owner operators find out quickly one of the trickiest and most confusing decisions they face is what to do about health insurance. When they get the first couple of quotes for standard major medical coverage they tend to have the vapors and then when they come to wonder how they are going to afford it.
One option that deserves your consideration is the HSA, health savings account, formerly known as the MSA or medical savings account.
My wife and I got an MSA in 1998 when they first became available. Congress decided to allow about 400,000 of these to be issues on a trial basis. They have now been "tweaked" and the name changed, but the basics remain.
A HSA is a high deductible major medical policy in tandem with a savings account used to pay for smaller health expenditures. 100% of the money put into the savings account is tax deductible, interest accrued in that account is tax free and if the money distributed from the account is for health care the expenditure is tax free.
At $280 per month, we now have over $15,000 in our savings account, almost enough for three deductibles. The deductible increases with the CPI each year, and our original $5000 deductible is now about $5400. This is a per occurance deductible, not a yearly deductible. However, the lifetime maximun for the policy is $2 million rather than the standard $1 million on most major medical policies.
The real beauty of these policies is that you now have vision, dental and chiropractic coverage all in one policy. When my wife or I buy glasses, have dental work or visit the chiro we just write a check from our MSA/HSA. The company also has a prescription card that gets a pretty good discount at most pharmacies.
I'm not involved in the insurance industry any more, although I used to be. I spent almost 10 years in the business and specialized for a number of years in the health insurance market. This was way back in the 80's and MSA/HSA's weren't around, but having some knowledge about the basics of health insurance convinces me the MSA/HSA is a good option for the self employed person/family. We have been more than satisfied with ours.
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Would you have a link where we could look at the plan(s)? Or perhaps explain further how one enters an MSA, etc. How funds are put into the account, how much, etc. Thanks
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Google: health savings accounts
I believe the top of the screen will have a link to ehealthinsurance or something like that. They have recently added HSA's to their health insurance offerings.
Our HSA is with Golden Rule Insurance. They're based in Indiana and were recently bought out by someone, the name escapes me right now but it hasn't affected our plan so I haven't paid much attention.
Some HSA's are funded with mutual funds (State Farm Ins. uses their own mutual funds). Others, like ours, are administered by a bank. Ours is a bank in Chicago. We have a checkbook issued by the bank and we just write a check when we get services or supplies (I'm diabetic and need meds and supplies). To the best of my understanding if you fund with a mutual fund you write a check from your personal account and reimburse yourself from the mutual fund account. A good insurance agent familiar with HSA's can be more specific. If you have a State Farm agent in the area you might start with him/her as a jumping off point to familiarize yourself with the concept.
Hope this helps.
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IowaDriver,
Thank you for sharing this valuable piece of information!
Connie
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How much is the coverage costing you. At $5400 deductable per occurance, you have practically no health insurance at all.
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I was kind of thinking the same thing, If your deductable is $5400 you will be paying for most everything out of your pocket, even if it comes from a set up account, its still your money. I would think that you would have to have some serious hospital time or operation to overcome your deductable. Maybe I wrong, I'm no expert so please correct me and enlighten us all.
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Priced a triple bypass operation lately? I didn't think so
People expect to get all or nearly all their health insurance premium back by expecting the health insurance to pay for all the small costs associated with living (glasses, tooth fillings, a bottle of Tylenol)... sorry folks, insurance does not work that way, and is why some of you (or your employer) are paying $8,400 per year to insure your family for all these relatively small costs.
The self employed wise up quickly.
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Yeah but a $5400 deductable per occurance? That means that most medical costs that people pay would never be covered by this policy. A broken arm for example. Now this setup is not bad if that coverage is costing him less than $100 a month. If he's paying any more than that, he's just throwing his money away.
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Wouldn't that high a deductible (for EACH occurrence) be called Catastrophic Health Insurance?
As Gordon said, it would seem that such specific insurance should be available at a reasonably low price.
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We seem to be missing the point about the HSA, that being a high deductible health insurance policy COMBINBED with a savings account.
We have had our HSA since 1998, when it was introduced as a MSA, medical savings account. Since then we have built our savings account to well over $15,000, almost enough now to cover three full deductibles. And that's with my dieabetes prescriptions and an eye surgery for my wife during this time. Also, there is no copay after the deductible is satisfied. No 80-20 for the next X number of thousand of dollars then the insurance pays 100%, satisfy the deductible and it pays 100% up to $2,000,000. Check your average health insurance policy today and the lifetime aggregate is $1,000,000.
A $5400 deductible is not being without insurance. It is being willing to self insure the small things. You could say it is a catastrophic plan, I guess, but with the savings account you have pre-paid those smaller cost items in return for premium savings. This illustrates one of the problems with the health care system today- too many people expect their health insurance to pay virtually EVERYTHING health related. It's been used to death, but the analogy of "if car insurance was looked upon to do the things health insurance is expected to do we'd want it to cover oil changes" does hit the mark.
Medical costs have skyrocketed for many reasons, but chief among them is we've taken the consumer out of the equation and inserted third party payors, either insurance companies or the government. If you examine the pricing history of typical medical practices that have not been routinely covered by those mechanisms , such as dental and eye care, you find that the costs in those segments have risen much slower due to the fact they still had to be priced within the reach of the average consumer since third parties weren't footing the bill.
I said it before I'll say it again, the HSA is the single best type of coverage you can buy as a self employed individual.
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You can get a much more favorable policy than the one that IowaDriver has and still qualify for an HSA. The guidelines for a policy that is eligible for an HSA is as follows: Minimum annual deductible $1050 (single) $2100 (family)
Max annual out-of-pocket including deductible $5250 (single) $10500
(family)
Max annual contribution, lesser of the deductible or $2700, $5450
figures are for 2006
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You have a point... I was thinking annual deductible.
However, considering the price of some procedures (heart operations, various cancers, etc), I wouldn't say he is throwing his money away with $2M of ultimate coverage (without know what his premium actually is). There are people out there paying in the vicinity of two grand a month just for meds.
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Haven't been down here for a while, guess I need to answer a question or two.
The health insurance portion of our HSA is $515/mo. BC/BS $500 ded. major med, checked last year just for the fun of it, would have been $1450.00 per month.
Now, we are both (my wife and I) over 50 years old. And, unfortunately, we are both smokers. If we were to be non-smokers the premiums would drop about 35-40%. We are both in the process of quitting and need to go three years smoke free to qualify for N/S rate.
As to looking at other insurance companies, supposedly lower rates:
1- I am diabetic, diagnosed when current insurance was in force. Changing companies would mean at best waiver for X number of years, at worst never having diabetes or it's complications (which could be most anything) covered.
2- I spent quite a few years in the insurance business, as I have said before. One of the things I learned during that time is the company with the lowest rates today is likely to have the highest rates tomorrow. Staying with an insurance company will, most times, allow you a certain amount of "goodwill", meaning if there's a borderline case where they could pay or not pay you'll have a better chance of getting the benefit of the doubt.
3- Self insuring as much as you can afford to, with a higher deductible, over the long term will always be to your advantage if, IF, you put the savings to use in an investment plan of one sort or another.
Finally, as to the Per Occurance deductible. How many illnesses/injuries do you get in the average year? How many of them are serious enough to satisfy even a $500 deductible? I have my Occ/Acc for my business and also have had personal disability insurance for 25 years, more than enough to cover personal expenses. Combine all together and I am not really any more at risk, considering the HSA balance I carry at this time, than someone with a lower deductible. I have just chosen to pay the smaller bills myself and have insured my income with the difference in premiums.