Co-pay plans are cool and everything, but they’ve got nothing on a HDHP paired with an HSA. Why are these high-deductible plans so delectable? It’s because they actually save people money instead of funneling more cash into the hands of insurance companies and doctors. You see, the health insurance system in the United States is a 3rd party payer system.
Typically, insurance works very well as either an indemnity contract or a valued contract. Indemnity means that you receive money equal to your damages. In other words, if you get a bill for $100, the insurer pays just $100. You’re “made whole.” A valued contract pays a set dollar amount regardless of damages. So, for example, if an insurance company promises $1,000 per incident, you’re paid that $1,000 regardless of whether the actual damages are $100 or $10,000.
Today’s system is a mongrel – it combines elements of an indemnity system with additional rules and gatekeepers that chew up the money that’s supposed to go toward making you whole after an injury or illness. Doctors “pad” their bills. Insurers make a counter-offer. You’re stuck in the middle paying slightly inflated prices. Your premiums go up every year and the cycle never ends.
With an HSA, you pay for medical services directly – cutting out the whole back-and-forth between the insurer and your doctor. Companies like HSAForAmerica.com have long-concluded that the HSA saves people on the order of $2,000 or more every year.
How Does An HSA Work?
HSAs have been around for about 10 years now. They were designed as a way for people to save money on their overall health care expenses by allowing them to set aside money in special tax-free accounts specifically designated for medical care costs.
They were to be purchased alongside special insurance policies called high-deductible health plans. These plans had high deductibles of over $1,500 and sometimes even over $5,000. The HSA funds would be used to pay for medical expenses up to the deductible. Because patients were asked to spend their own money on medical costs, they became much more aware of what medical procedures cost – thus, they shopped around for the best deal.
Should You Use An HSA?
Of course, the trade-off in using an HSA is that you have to be able to manage your own health care costs. These plans force you to be more responsible for your medical expenses. If you’re not used to that, there’s a steep learning curve. You have to be committed to saving money too since the accounts are funded out of your own paycheck.
Generally, if you do not envision using your doctor for much beyond emergency care or routine physicals, an HSA plan makes a lot of sense.
Compare the costs of an HSA eligible health plan with a traditional co-pay driven plan. If the total premiums for the year, plus your out of pocket costs, are less than the co-pay driven plan, the HSA + HDHP makes sense. If you would spend more money under the HSA + HDHP, then the co-pay driven plan makes more sense.
Susan Thomson has been a nurse for several years. She frequently writes about the healthcare industry and its effects on patients.