The Alphabet Soup of Health Insurance

I have often heard that it is very confusing to understand health insurance due to the number of acronyms used for programs.  I will review one of those programs in this article, and then others later on.

There have been many changes over the last few years with health insurance programs, both for the individual and for group plans.  One major change has been the introduction of Health Savings Accounts, or better known as an HSA.  These were first introduced in 2004 as part of the Medicare Prescription Drug Improvement Act.  The key ingredient of the HSA is to make the individual a better consumer of healthcare.

 

There are two components to an HSA.  First is the high deductible health insurance plan offered by the insurance company.  The second is the savings plan offered by a bank that has tax savings implications.  The premise is that the member will take the monies saved by having a higher deductible plan and put that money into the savings account.  And then if there are qualified medical expenses, those will be paid from the medical savings account.

In general, under the high deductible medical plan, there are no office visit copays or prescription copays until you have met the deductible.  Usually the annual deductible is $1500 or $3000.  But there are a number of preventive care services that are included without needing to hit the deductible.  And so the individual takes a close look at all medical expenditures…hence, becoming a better consumer of healthcare.  You will shop around if you need an MRI, special medication or surgery.

And with the HSA savings account, your contributions throughout the year can be tax deductible.  And the funds remain in the account from year to year if you do not use them, thereby providing a savings program.  You have control of the account, deciding how much to contribute, up to an annual maximum, and how to invest. The account is yours, providing flexiblity if you change jobs or move out of state.

An HSA is another option in the myriad of health insurance plans.  This product is not for everyone, but it may fit your needs.  Take a closer look at it as you research alternatives for your individual or group health plan during 2012.