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The New Health Insurance Solution: How To Get Cheaper, Better Coverage Without a Traditional Employer Plan
By Paul Zane Pilzer
The New Health Insurance Solution: How To Get Cheaper, Better Coverage Without a Traditional Employer Plan is written for individuals and business owners who want to learn more about the new Health Savings Accounts (HSAs).
New legislation allows individuals to combine a high-deductible health insurance policy with a special tax-advantaged account called a health savings account. Similar to an IRA or 401(k), amounts contributed to an HSA aren't subject to income tax. The money can accumulate tax-deferred over any number of years and isn't forfeited if it isn't used.
If the money is used for qualified medical expenses, withdrawals aren't taxed. This allows you to pay for medical expenses with pretax (and untaxed) dollars. If a withdrawal isn't used for medical expenses, the withdrawal is treated as a withdrawal from a 401(k). In particular, people over age 65 can withdraw the money at any time for any purpose, but would pay income tax on withdrawals not used for qualified medical expenses.
Because of the double tax benefit, Pilzer argues, you should fully fund an HSA before contributing to an IRA or a 401(k). The catch is that you must have a high-deductible health insurance policy to open an HSA.
While increasing your deductible might be a great idea, it's crucial to understand how your policy is priced and to know if increasing the deductible might induce other unintended consequences in an individual plan with which you're currently satisfied. My concern is, if the policy's price is somehow indexed to a group-purchased policy, will increasing the deductible remove you from such indexing? That might not be desirable.
If you leave an employer, Pilzer says COBRA plans are expensive. However, I believe COBRA often offers the best protection available. For example, if you had a government or university healthcare plan, it seems unlikely you'll equal the coverage with an individual plan that didn't originate thorough COBRA.
Pilzer says company health plans often aren't price competitive, because companies sometimes don't care about the cost. I don't fully agree with this. Universities, governments, and larger companies are probably going to be able to negotiate much better plans than individuals. I think this explains some of the high costs of these plans.
So, for those with individual plans with solid coverage who can afford them, I'd look before I'd leap into a new HSA-qualified insurance plan. If you can increase your deductible without any other issues, doing so might work out great. If you already have a high-deductible health insurance plan, it seems adding a health savings account is a no-brainer.
For those lacking health insurance or those who really need to minimize their annual premiums, Pilzer's book is particularly valuable. It seems the ideal person for an HSA is somebody with modest or high earnings who is relatively young and healthy. That allows the person to save a portion of the deductible each year.
You'll need to hunt around on your own to find a desirable institution to hold your HSA, especially if you want one to hold stocks. Pilzer notes there are hundreds of firms offering health savings accounts and soon there should be thousands. Yet, the main discount brokerage firms seem to be no-shows so far. And Pilzer doesn't recommend any institutions in particular.
For those who can afford to save the amounts paid for healthcare each year and pay out-of-pocket for healthcare, Pilzer offers an intelligent strategy: Pay for your care without using dollars in the HSA. Pilzer points out you get the tax benefit of the HSA by contributing to it, the reimbursement can always be made later--even years later--and this allows you to maximize future savings for healthcare. The result could be that you have several hundred thousand dollars saved for your future healthcare when you are older and most need it.
Pilzer says his own "superdeluxe" policy only costs him $400 a month for a family plan covering him (age 51--the highest age in the plan is a major factor in its cost), his wife, and his four children. His deductible is about $5,000. That sounds like an incredible deal. But, without knowing what he considers "SuperDeluxe," it's difficult to compare it to other plans.
In addition to discussing HSA's, Pilzer covers several important topics, including:
The New Health Insurance Solution: How To Get Cheaper, Better Coverage Without a Traditional Employer Plan provides a wealth of information about healthcare in America. We learn:
Pilzer writes: "While there is nothing wrong with large customers bargaining for better prices, today there is no longer any true 'retail' price in medical care. Providers have artificially inflated their retail prices two to five times just to meet ridiculous contracts forcing them to give 50 to 80 percent discounts to large purchasers. The terrible side effect is that the working poor and other people without health insurance are charged two to five times the price paid by most people for healthcare--and often are driven to bankruptcy when they cannot pay these exorbitant prices."
Pilzer says Americans pay so much for healthcare because we're out of shape and don't eat right. Yet, if we compare medical and drug costs in the U.S. to those costs in other countries, it's clear Americans are soaked by hospitals and pharmaceutical companies.
Pilzer offers some good suggestions for improving the healthcare situation, such as forcing all healthcare providers to disclose their prices. However, unlike Pilzer, I don't believe a "free market" will solve the healthcare problem America faces today. Most other countries have regulated medical costs and have taken other steps to protect their citizens from extortion by medical and drug companies. That's why prices are so much lower in other countries. So, while HSAs are a great development, they're hardly a "solution" to the cost of healthcare in America.