Colorado HSA

HSA vs. Co-Pay Plans. What's right for you?

To begin with it's important to understand what an HSA is.

First we need to understand what a High Deductible Health Plan (HDHP) is.

A HDHP is a requirement for being eligible for open a Health Saving Account. HDHP's have a minimum deductible of $1,200 for individuals and $2,400 for families. The maximum deductible amounts offered are $5,950 for individuals and $11,900 for families. These numbers are modified every year by the IRS to reflect the change in cost of living.

The following is a description taken from Wikipedia:

A health savings account (HSA), is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), funds roll over and accumulate year to year if not spent. HSAs are owned by the individual, which differentiates them from the company-owned Health Reimbursement Arrangement (HRA) that is an alternate tax-deductible source of funds paired with HDHPs. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.

Yeah I know, that's a lot of IRS Jargon that's hard to understand....

Here are some bullet points about HSA's

Most quality HSA plans have only one deductible for the entire family
Everyone contributes to the same deductible
Money that has been deposited into your Colorado HSA is now tax deferred from your income
Lower Premium vs. Copay
People like to take advantage of the difference they are saving in premium and deposit it into their HSA
Often times by going to a higher deductible there is a reciprocal value between the savings in premium vs. the higher deductible. As a result you can pay less to the insurance company and save the difference by putting it into your HSA and thus making that money tax deductible.

Challenges some people have with overcoming HSA Plans

Nothing is covered until the deductible amount is reached
It's a concept that we are not accustomed to.
More than likely the only two people you know that like HSA's are your accountant and me

Now that we know the challenges to HSA's I want you to mull over a few questions

On a copay plan what is covered before you reach the deductible?
Over the last couple of years how often have you and or your family gone to the doctor?
How much total, did you pay out of pocket for Copays when and or your family you went to the doctor?
Over the last couple of year how often have you and or your family had a Rx filled?
How much total, did you and or your family spend for Copays on your Rx?
How much is your premium?

I asked the very same set of questions to a client recently. Her reply was:

Dr visits and Rx both at a copay. (some plans pay first dollar expenses for preventative care and some lab work.)
She and her family went to the doctor collectively 4 times over the last 2 years. Her copay visits were $35 each
She and her family only one Rx and it was a minimal charge at Wally World
Her families monthly premium averaged $450 over the last 2 years.

She just about fell out of the chair when I showed her the premium difference between the plan she was on and an HSA plan that offered more or less the same deductible amount. It was $80 a month less, so those 4 Dr visits averaged out to $480 a visit! Oh, I almost forgot to add in the $35 per visit copay. That brings it up to $515....

So what does this tell us?

Take Dr Copay visits and Rx Copays out of the plan and will you reduce your premium. (remember, once you reach your deductible Dr visits and Rx are covered at 100%

Here are some files that should help you understand how an HSA works.

HSA vs. Copay (very useful tool)

Aetna HSA Fact Sheet

Aetna HSA FAQ