Fighting high health insurance costs with qualified high deductible health plans and health savings accounts

By Jared Balis

For the Deseret News

Published: Tuesday, Nov. 22 2011 5:46 a.m. MST

The combination of health savings accounts (HSAs) and qualified high deductible health plans (QHDHPs) has proven to be a powerful weapon in the battle of rising health insurance costs.

Because consumers who use this solution have an opportunity to save hundreds and even thousands of dollars on health insurance premiums, these plans have become increasingly popular with Utah residents since their introduction in 2003.

Here are four compelling points to consider using an HSA and QHDHP:

  1. You may be able to significantly lower your monthly health insurance cost by switching to a qualified high deductible health plan.
  2. Consider depositing a portion, or all, of your monthly premium savings into your health savings account and use the funds to pay for qualified medical expenses with tax-free money.
  3. Many HSA-eligible health plans cover 100 percent of your medical expenses after you meet the deductible, leaving you with a clear knowledge of your maximum out-of-pocket expenses in a given year.
  4. The balance in your health savings account rolls over from year to year, letting the balance grow. It's not a "use it or lose it" account, like a Section 125 Cafeteria Plan.
In order to take advantage of these benefits, you must participate in the two components that combine to make up the final solution.
  1. In order to be eligible to use a health savings account, you must purchase a qualified high deductible health plan. “Qualified” simply means that your health plan meets the IRS guidelines to be used with a tax-advantaged health savings account. As the name suggests, these plans have high deductibles, typically ranging from $1,200 to $5,000 per year for individuals and $2,400 to $10,000 per year for families. This health plan becomes your primary and sole health insurance plan.
  2. Once you’ve setup a qualified high deductible health plan, you are eligible to open a health savings account. An HSA is simply a checking account that is labeled “tax advantaged.” Most banks and credit unions offer HSAs. In addition, many health insurance companies that offer QHDHPs offer HSAs through their preferred vendors.
While this is a powerful solution for many Utahns, it is not the right solution for everyone. To determine if this is the best move for you or your family, ask yourself the following questions.

Do you, or anyone in your family:

  • Have an expensive and/or chronic health condition?
  • Have substantial prescription expenses?
  • Utilize medical benefits often?
Of course, it’s impossible to predict future medical expenses. But using past expenses as a guide can help you determine if a qualified high deductible health plan is a reasonable option for you or your family.

If you answered yes to all three questions, you will likely benefit from being covered by a plan with comprehensive medical benefits. The HSA/QHDHP solution does not typically work well for individuals or families that spend thousands of dollars on medical expenses each year.

However, if you answered no to all three questions, this solution is well worth exploring. Consumers who spend little on medical expenses each year may reap substantial rewards by using an HSA in combination with a QHDHP.

If you answered yes to some questions but no to others, it’s a good idea to do in-depth research to find out if this solution will work for you.

Can you benefit from a tax deduction?

One of the biggest benefits of using an HSA is the ability to pay for health, dental, vision expenses and more with tax-free money. If a tax deduction will benefit you, an HSA may be the ticket to saving you even more. If a tax deduction is of little or no help to you, focus on the monthly savings vs. the extra risk you'll be taking on with a high deductible health plan.

While this isn’t an end-all solution to the problem of rising health care costs, it’s one that has the potential to affect a person’s financial situation in a positive way. Sharon Opfermann, the owner of a doggie daycare and overnight boarding facility named Camp Bow Wow in South Salt Lake, has benefited from using a health savings account for over three years.

"An HSA has provided me with a way to save money on a pre-tax basis for immediate health insurance expenses, and it’s also provided me with a way to supplement my health insurance into retirement," said Opfermann, who has saved thousands of dollars in premiums over the last three years.

It’s often recommended by financial professionals and insurance agents to use some or all of the money you save on your monthly premiums to fund your health savings account. Once you've built up a good-sized, pre-tax nest egg for a rainy day, the monthly premium savings become a welcome financial bonus.

Talk to a representative at your company's human resource department or your health insurance agent about qualified high deductible health plan options that may be available to you, and turn the tide in the battle against high health insurance costs.

10 common HSA-eligible medical expenses

A 47-second video reviewing 10 common medical expenses that are eligible to be paid with pre-tax money from a health savings account (HSA).

Jared J. Balis is a licensed insurance agent in the state of Utah and the owner of Utah Insurance Advisors, a life and health insurance agency located in the Salt Lake Valley. He strives to help Utahns navigate the complicated Utah insurance market.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS