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HSA Discussion
Old 11-23-2009, 05:30 PM   #1
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HSA Discussion

There was an article posted on the WSJ's editorial web page a day or so ago--it was titled "The End of HSAs". Someone referenced the editorial on another finanical fourm, and there was some rather heated arguments going on about HSAs--why they work, don't work, how the cost too much, how they are the best buys in insurance, etc. Some of the debate was sensible, reasonable---some not so much.

There were several arguments made that HDHPs/HSAs only made sense if you were young and/or healthy---and as I understand it, that is one of the arguments some folks in Congress make against them--they siphon off the low risk people, and leave higher risk people in a single pool, pushing their costs higher. My own thoughts are, if this were true, that this would be an issue---to me, part of what makes insurance work is that we pool our risk. But what I think is interesting is that in my limitted experience, my company's HDHP/HSA seems to be cheaper than the traditional BC/BS plan offered--regardless of how old, sick, or healthy you are.

In my case if you compare the annual cost of the BC/BS premiums to:

the annual cost of the HDHP premiums
+ the $3000 annual deductible for the HDHP
- the annual amount my employer contributes to the HSA

the HDHP costs less than the BC/BS plan. I would add that once the HDHP coverage kicks in, the copays are actually a bit lower than what we would pay under BC/BS.

Now I realize that all of these plans are a bit different form one another, so my numbers may not be typical, but I suspect they are not unusual. All this leads me to conclude that the reason many folks don't sign up for HDHPs has more to do with cash flow---a lot of folks just don't have the liquidity to be able to abosrb the first $3000 in medical expenses. In my view its is like buying a car over time vs. paying cash (lower payments but higher total cost). The HDHP is like paying cash (lower total cost), and the BC/BS plan is like financing--higher total costs but less cash needed upfront.

Thoughts? Thanks.
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Old 11-23-2009, 06:33 PM   #2
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Quote:
Originally Posted by stephenandrew View Post
There was an article posted on the WSJ's editorial web page a day or so ago--it was titled "The End of HSAs". Someone referenced the editorial on another finanical fourm, and there was some rather heated arguments going on about HSAs--why they work, don't work, how the cost too much, how they are the best buys in insurance, etc. Some of the debate was sensible, reasonable---some not so much.

There were several arguments made that HDHPs/HSAs only made sense if you were young and/or healthy---and as I understand it, that is one of the arguments some folks in Congress make against them--they siphon off the low risk people, and leave higher risk people in a single pool, pushing their costs higher. My own thoughts are, if this were true, that this would be an issue---to me, part of what makes insurance work is that we pool our risk. But what I think is interesting is that in my limitted experience, my company's HDHP/HSA seems to be cheaper than the traditional BC/BS plan offered--regardless of how old, sick, or healthy you are.

In my case if you compare the annual cost of the BC/BS premiums to:

the annual cost of the HDHP premiums
+ the $3000 annual deductible for the HDHP
- the annual amount my employer contributes to the HSA

the HDHP costs less than the BC/BS plan. I would add that once the HDHP coverage kicks in, the copays are actually a bit lower than what we would pay under BC/BS.

Now I realize that all of these plans are a bit different form one another, so my numbers may not be typical, but I suspect they are not unusual. All this leads me to conclude that the reason many folks don't sign up for HDHPs has more to do with cash flow---a lot of folks just don't have the liquidity to be able to abosrb the first $3000 in medical expenses. In my view its is like buying a car over time vs. paying cash (lower payments but higher total cost). The HDHP is like paying cash (lower total cost), and the BC/BS plan is like financing--higher total costs but less cash needed upfront.

Thoughts? Thanks.
It really depends on what you can buy. I could only buy through our risk pool. The pool offered several different plans, which is unusual for a risk pool. One option was an HSA plan. Given the amount we spend for medical care, and comparing it to the cost of the other plans available, it did not make sense to purchase that plan. It was surprisingly expensive.
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Old 11-23-2009, 08:43 PM   #3
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Adverse selection is a valid argument against HSAs. In a system where all insurers are forced to accept everyone regardless of pre-existing conditions, it makes sense for healthy people to take the lowest cost, lowest coverage insurance available (or none at all). And then switch plans once they get sick.

Support for HSA's also breaks along typical political constituencies. HSA's provide the greatest subsidies to those in the highest income brackets and the least to those in the lowest.

Personally, I like the concept of consumer directed health care for small ticket items. HSA's are a step in that direction. But with so few people in HSA plans, I feel like the only consumer in the market who is price sensitive. It's not a market design that works. To be effective, everyone has to be price sensitive. So instead of eliminating HSAs as an option, I'd favor a system where every plan has a meaningful deductible, which would also reduce the adverse selection issue. The backward subsidization scheme could be fixed in other ways.
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Old 11-23-2009, 08:53 PM   #4
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Originally Posted by stephenandrew View Post
Now I realize that all of these plans are a bit different form one another, so my numbers may not be typical, but I suspect they are not unusual. All this leads me to conclude that the reason many folks don't sign up for HDHPs has more to do with cash flow---a lot of folks just don't have the liquidity to be able to abosrb the first $3000 in medical expenses. In my view its is like buying a car over time vs. paying cash (lower payments but higher total cost). The HDHP is like paying cash (lower total cost), and the BC/BS plan is like financing--higher total costs but less cash needed upfront.

Thoughts? Thanks.
That's not how my plan options shake out. Our HDHPs actually have less over all insurance coverage. Beyond the initial high deductible, the co-insurance is higher too. So by selecting the HDHP you get an initial benefit from a lower premium, tax deductions, and an employer contribution to the HSA. That is offset by a higher deductible and higher co-insurance. So as long as you're relatively healthy, the HDHP is a better financial choice. But as you incur medical costs you eventually burn through all of the upfront savings of the HDHP.

So it depends on how the plans are structured, apparently.
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Old 11-24-2009, 03:21 PM   #5
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There is a huge difference between HSA's in a group plan and HSA's on the individual market. It will vary from state to state, but here in Virginia, the total maximum out of pocket expense on an HSA policy, especially for a family, is significantly less than a comparable co-pay plan regardless of age. Couple that with premiums that are 30-50% less each month and the tax advantages and it rarely ever makes sense to have a co-pay policy....yet people still want their co-pays, even if they never go to the doctor. Welcome to America.

Want another advantage of HSA plans? How about 100% paid after deductible. Co-pay plans from some companies have no limit on your out-of-pocket expense for incredibly expensive specialty prescription drugs. United Healthcare and Assurant both have policies that have no limit on your Rx cost (usually 25-40% co-payment), but both of their HSA policies limit the expense to the policy deductible. Very few people understand this until it's too late, even after I explain it to them.
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