How to Evaluate a High-Deductible Health Care Policy

According to an August survey from America’s Health Insurance Plans, as of January 2010, 10 million Americans were covered by high-deductible health plans with a health savings account (HSA) feature. That’s up from 8 million in January 2009 and 6.1 million in January 2008.

A 2008 report by the Kaiser Family Foundation and the Health Research & Educational Trust pointed out that the number of workers with high-deductible plans has nearly tripled in firms with fewer than 200 employees between 2006 and 2008 to a total of 11.7 million.

The advantage? These companion policies allow individuals and families to keep monthly premiums relatively low while being able to deposit pre-tax dollars into its companion HSA account that allows account holders to use those pre-tax dollars to pay out-of-pocket medical costs. Earnings on those accounts are also tax-free — as are withdrawals used for qualified medical expenses.

But, is this choice right for you? Here are some considerations:

Numbers you need to know: HSAs are only available with qualified high-deductible health insurance policies. To get the combo, you must be enrolled in a qualified health insurance plan with an IRS-required deductible of at least $1,200 for an individual or $2,400 for a family. In 2011, individuals may contribute a maximum of $3,050 to an HSA and families can deposit up to $6,150.

Assess the health plan properly: Check lifetime limits for claims (don’t go under $5 million) and make sure the health plan provides first-dollar coverage on preventative care because the new healthcare law requires it. Regular preventative care may end up in significant savings. If you have a particular health history, it may be tougher to qualify for that insurance.

Note the fees: HSA accounts are offered at banks and other kinds of financial institutions. You’ll be charged a one-time setup fee of anywhere from $25 to $75 and annual fees that might be as much. Since these are investment accounts, fees might potentially eat up any gains you’ll earn, so keep them as low as possible. While many employers pick up these fees, self-employed people are generally stuck with them.

Check the investments: Assess the investments in your HSA just as you would a mutual fund or Certificate of Deposit (CD). Whatever option you choose, check what the commercial returns are and see if your investment will be competitive. But remember that this account also needs to serve as an emergency account to cover your deductible and any other medical costs. So you’ll have to balance higher earnings against safety.

Keep good records: It’s important to track all medical spending from these accounts and to make sure they’re qualified. That’s a particularly important thing to do with upcoming changes due to the health reform law — non-prescription medicines no longer qualify. Also, weigh carefully the decision of asking a doctor for over-the-counter antacids and pain relievers — some health insurers may accuse you of failing to report a pre-existing condition, which could lead to them dropping your coverage.

Price procedures: If your HSA is going to cover any uninsured procedures or uninsured portions of healthcare costs, make sure you’re comparing costs for procedures. It’s always OK to discuss prices for various procedures with doctors — and to walk away from doctors who won’t discuss them. There are also online resources that might help you make a decision including Healthcare Blue Book, a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

Watch how you spend HSA funds: The healthcare reform in Washington has changed the rules on what may be paid for out of funds in HSAs, as well as flexible savings accounts. As of Jan. 1, 2011, over-the-counter medications are no longer considered eligible medical expenses. Also, there are some insurance premiums that may be eligible medical expenses, including some long-term care insurance plans.