Monday, February 14, 2005

A short sidebar on health insurance

WARNING: I am putting on my CPA hat here (it was not included in the poll, btw). The following discussion may only be of interest to accountants and Libertarians, and since I happen to be both, I find it interesting. YMMV.

I found out this weekend that I have satsified my $1,750 deductible (which is the same as my out-of-pocket limit) for 2005. This means that any covered in-network expenses will be paid at 100% for the rest of the year. Good news - that's what catostrophic coverage (which is what a $1,750 deductible really means) is for.

Now, my deductible is rather high, but this is no accident. My employer has set up Health Savings Accounts (HSAs) for us (formerly known as Archer Medical Savings Accounts). This strange breed was created by Congress as sort of a test case for individuals to manage their health dollars wisely. Here's the way it works. The employee or employer can contribute up to the deductible amount to the employee's HSA each year (employer contributions are tax-free; employee contributions are tax-deductible). The money can be used for most any legitimate medical expense, even those not covered under the medical plan (dental, orthodontia, etc.). As long as a withdrawal is used for a medical expense, the money comes out tax free.

However, the money in the HSA always belongs to the employee, so there's no "use it or lose it issue" like there is with cafeteria plans and flexible spending accounts. This gives the employee an incentive to a) seek quality care at a reasonable price and b) not run to the doctor every time they sneeze. The long-term upshot to a HSA is that once the emplyee reaches retirement age, the funds are available to supplement retirement income (those withdrawals would be subject to tax, where any withdrawal for medical expenses would not be taxed).

I personally like the HSA arrangement - it's a way to bring health care decisions back to the consumer. Granted, I am fortunate that my employer's policy is to fully fund the employee's HSA each year up to the deductible amount (the total annual cash outlay, even when adding the HSA contributions to the actual premimums is still cheaper than going with a traditional HMO-like arrangement with co-pays and the like). Anyway, I see the idea catching on and potentially slowing the runaway freight train of health costs.

BTW, for those of you interested, the total costs on the table so far (at least the charges turned in to insurance) are over the $20,000 mark. Hardly any of the chemo costs have been turned in yet. Some of the charges date to 2004 so I'll be on the hook for about $500 there, but I have money in the HSA for just such an emergency.