Mindy Crary, MBA

Financial Coach & CFP™ Practitioner
Seattle, Washington

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Part 2: Health Savings Accounts: To HSA or Not To HSA?

In my last article, I covered HSA basics. Now, using myself as a guinea pig, I'll see how one might stack up for my situation.

Written Jan 26, 2009, read 2835 times since then.

As I mentioned in Part 1 of this article, I am going to use myself as a guinea pig to show people how they might go about deciding if an HSA is right for them. Since I do not SELL health insurance, this is purely from a consumer standpoint and meant to be educational.

In 2008, I paid $305 per month in premiums, $40 per month in prescriptions, and I paid another $390 in lab fees, coinsurance, etc. So at the initial calculation, my total outlay this year is $4,530.

I looked up HSA-eligible plans on esurance.com and found Regence has one of the highest rated plans with a $1,500 deductible (not as high as it could be!) and a $180 monthly premium for my age (none of your business). I could have picked a plan with a much lower premium, which would have meant my deductible would be significantly higher. However, I am relatively conservative with my insurance risk aversion.

I went back and figured all of the costs of all of the services I had, and came up with about $1,500 (purely a coincidence that this is the same amount as the deductible I chose for the HSA plan). Adding this to my HSA-eligible plan premium of $180/$2,160 annually, I get a total outlay of $3,660; an $870 difference in favor of the HSA. There is also additional savings because I get to deduct my contributions up to $2,900 from my income (that deduction bumped up to $3,000 in 2009) and I get to pay for my expenses with pre-tax dollars.

This doesn't mean my actual cost may be lower in the future, it just means it would have been lower this year. After the deductible is met, I would still need to pay 20% coinsurance on all additional costs incurred. If I pretend that the additional $870 that I paid in 2008 by not having an HSA plan is the total amount of 20% coinsurance that I might have paid after the $1,500 deductible is met, I could have had an additional $4,350 in medical costs. Yikes, I could have had a nose job . . .

And yet . . . I still have a bias toward traditional medical plans. It's familiar, and familiarity provides peace of mind . . . and I guess that means peace of mind is worth a certain dollar amount more than it's worth saving a buck. As you may or may not know, I broke my ankle in three places at the start of December (which is a pretty funny story), and am just now starting to get information on what that cost and what I will need to pay-so the medical costs are over and above what I calculated previously.

With an emergency room visit and surgery, so far I only need to pay about $400. Something else I noticed . . . my health insurance plan reviews the costs that the doctors and hospitals submit. Then they say (or I imagine them saying) "Hey, your cost for that care was a LOT more than the typical cost, so we are going to DISALLOW X number of dollars, so that your payment is based on a cost that more accurately reflects the norm."

Since an HSA plan allows you to pay costs directly prior to meeting the deductible, I imagine that since there would have been no intermediary insurance process to protect me prior to payment, I would have ended up paying the total cost, more than other people would be paying for the same thing. I asked a friend about this "disallow" thing, and she confirmed that in all of the private practices she has worked in, the revenue projections always include a write-off amount they know will be disallowed. Roughly 30% . . . so, with an HSA plan I might be paying upwards of 30 percent more than the person with a tradition health plan. This is pure theory and speculation on my part. I'm sure an HSA rep can set us straight!

So, as a consumer and soloprenuer, what's a girl to do? For now, since I am still gimping around from my ankle fiasco, I intend to defer this decision until healthier times. Hopefully, some of the information I provided can help you decide if an HSA is right for you.

Learn more about the author, Mindy Crary, MBA .

Posted by Robert Anderson, kennewick, Washington | Feb 01, 2009

Hello Mindy, I liked your article, It was interesting to me as a health insurance advisor to read your input from what you have run into. The HSA plans were billed as the plans that everyone could afford and as you stated the numbers do not always was out to be that way. I set up plans for individuals and groups in several states everyday and only about 10% or less do we put on HSA plans.
as for your question on the disallow or what I have always known it as is allowed amount on a HSA it would work as follows. If you went to a doctor who was contracted with the carrier you have the HSA through then the bill would be cut down to the contracted amounts, thus the disallowed or allowed amount. One important thing to remember on all plans is that if any procedure is subject to the deductible or co-insurance you should not pay at the time of service. You should let the doc bill your insurance and let the insurance company do its job by discounting the bill. They will then send you a EOB, explanation of benefits and that will tell you what to pay the doc. IF they are contracted with the carrier they have to wait until the claim is processed by insurance before requiring payment from you otherwise they are in voilation of their contract with the carrier. HOpe this helps some, give a holler if I can be of any service Robert
Posted by Kate Phillips, Seattle, Washington | Feb 03, 2009

In my experience of using a plan with an HSA, I was able to save money by paying cash at my chiropractor's office. I was also able to save approximately 25% by using pre-tax dollars for health care.

The plans, however, are not a good fit for those who would not have cash to pay for medical expenses when needed.

But really, it's a mindset shift. For awhile, I simply put money in automatically every month into my HSA. It's similar to saving in an IRA or 401k, except, you can use the money NOW for medical expenses, and keep the tax cut.

Economist and entrepreneur Paul Zane Pilzer wrote a book in detail about HSA's - The New Health Insurance Solution. One would be wise to balance his "pro" view with updated information and research about the cons, but he makes a compelling argument, even for employees, to consider "self-insurance" rather than traditional plans that often act as "handcuffs" to keeping people in jobs that no longer serve them.

When an employee has to leave work for something like cancer, heart attack, or an accident, they are forced to keep the same insurance, paying astronomical COBRA fees. When that expires, or they can't make payments, they are left with no insurance, and bankruptcy typically follows. HSA plans prevent that scenario.

Thanks again for shedding light on this.
Posted by Mindy Crary, MBA , Seattle, Washington | Feb 03, 2009

Awesome tip Robert, I am so glad you contributed your two cents!!

Kate, I get what you're saying about COBRA . . . in Oregon they require employers to offer a group plan that is convertible to an individual policy without additional underwriting to protect from that very example. Oregon is one of the most highly regulated states for insurance, but maybe we couldtake a lesson from them!
Posted by Robert Anderson, kennewick, Washington | Feb 05, 2009

One more quick note to keep in mind when transfering to a HSA or high deductible plans. Some carriers will not recognize it as a prior creditable coverage if moving to a lower deductible plan. This means that if you drop to a major medical plan with a high deduct and then have some major claims come up and want to more to a lower deduct plan you could be dinged with a Pre existing condition with certain carriers.

As for the Cobra continuation, The rules apply in WA and most other states since Cobra is a Fed program. If the employer has 20 or more staff then they have to offer you Cobra continuation.
Once you exhaust Cobra then a indiviual plan has to take you regardless of health. What many people and brokers do not know is if the employer has under 20 staff and is not cobra eligible then a individual plan has to take you without underwriting as well when termed off the company plan. Cobra is not actaully expensive, you just have to pay what the actual cost is for the insurance, what your employer has been paying all the time. It just seems like a lot because the employer has been covering most the cost before. If the employers rate is low than your cobra will be low. Cobra allows for a admin charge but only 2% or so. If you are in your 60's most cobra rates could look very good depending on the employers design. If your employer plan is high cost or you as a employer feel your benefits plan is too high then you need to talk to me. ( HA HA) Robert
Posted by Judy Dunn, Seattle, Washington | Feb 17, 2009

Thanks for laying this out so clearly, Mindy, and sharing your personal experience. Health insurance coverage can be so confusing.

You "walked" us through it, even with your bum ankle. The fact that you can deduct your HSA investments from your taxable income right off the top is appealing to me.

Now, really, what's the story on your ankle? : )
Posted by Mindy Crary, MBA , Seattle, Washington | Feb 17, 2009

Thanks Judy! I appreciate your feedback. Details on my ankle are long and sordid, so I did my own blog post about it here:

http://www.groundingpoint.com/blog/2009/1/6/my-broken-ankle.html

Hope you enjoy it :o)