If You’re Under 65 and In Good Health This May Work for You?

I think that the average healthy individual can secure access to the best health care available while potentially saving
thousands of dollars a year in health insurance premiums. Consider the combination of a catastrophic health plan
and a health savings account. Discuss it with your insurance agent and your accountant. Here’s a brief run down:

Catastrophic Health Insurance:

These plans can save on average 45-75% on the premiums compared to a low deductible full benefit PPO or HMO
plan. Of course even the best full benefit plans still have significant co-pays for all health care services and
medications and place limit your access to health care to doctors and hospitals that are in network versus out of
network (see details).  For example, for a 40 year old healthy male a typical zero deductible PPO with 40 dollar
doctor visit co-pays and 80% hospital coverage and $20 medication co-pays will run between $250 and  $300 per
month in premiums. A $5,000 deductible with 80% hospital coverage and no medication coverage will run below
$100 per month in premiums. An HDHP coupled with a Health Savings Plan will run about $150 a month. Savings can
range from $1000 to $2,500 per year depending on the plan.   

Health Savings Accounts:

Recently placed into law after a 3 year trial period, health savings accounts (HAS’s) provide an option for healthy
individuals to save money on health insurance premiums. Instead of paying large sums in health insurance premiums
individuals are afforded the choice of opening a savings account dedicated to health related expenses. There are
limitations on the account but it creates a tax-deferred basis for payment of health related expenses and can be a
wise choice for the average healthy individual. In combination with catastrophic health insurance HAS’s can provide a
good savings option for outpatient health care and medication costs along with the necessary protection against
astronomical hospital bills in case of a medical catastrophe.

Scenarios you may face with a combination of high deductible health plan (HDHP) and a health savings account.

1)        If you suffer a medical catastrophe: If you end up in the hospital you pay the deductible on your plan
commonly the first $2-5,000 of the bill.   Not a great scenario but the plan serves its purpose: a single hospitalization
will never bankrupt you and turn into a catastrophe! This is important to keep in mind considering a single day in the
hospital can cost upwards of $10,000. Most traditional plans also have a deductible but they are commonly $500 or
lower. Most plans regardless of the deductible will only pay 60-90% of the remainder of the hospital bill. Most HDHP’s
are in the 80-90% range versus traditional plans that are quite variable on this potentially disastrous scenario.
Please pay close attention to this detail when purchasing an insurance policy as it may harbor a very ugly surprise
for you someday.

2)        If you never get sick: If you don’t end up in the hospital you save quite a bit of money. HDHP’s have
premiums that can be as low as 30% of the regular HMO and PPO plans depending on your age and health status.
For the first year or two you should take these savings and deposit them in your health savings account. Assuming
you do not utilize a significant amount of health care services, you should have a healthy savings in this account
after one or two years, which should surpass the annual deductible for any hospitalization.   
3)        If you need Routine outpatient care: You can use the funds in your HSA to pay for outpatient health
related services in pre-tax dollars. Out of this pre-tax savings account you can pay for doctor visits, labs, X-rays,
medical supplies, over the counter and prescription medications.
4)        Which doctors can you see: In this scenario you are not restricted by your insurance plan as to where you
go and whom you see for your medical care. You will not find a doctor in San Luis Obispo or anywhere else for that
matter who does not accept cash payments. The only thing to take care of ahead of time is how much doctors will
charge you for their services. Cash payments for physician  services should probably be within 150% of Medi-Care
charges in your area. Considering such a scenario the average comprehensive physical with labs should not exceed
$200 and the average office visit should not exceed $75-100. Consider these charges given the average $30 co-pay
for office visits on most office visits with traditional health insurance plans.
5)        Which medications can you take: This is up to you and your doctors. It is not regulated by an insurance
company drug formulary. You decide, it’s your money, pre-tax money that is. Medications are all on sale, depending
on your tax bracket.  Please discuss the fact that you’re paying out of pocket with your doctor. In most cases, older
generic medications are just as good as newer medications that you see advertised on TV. The difference is only
how much money the pharmaceutical company is making on the sales. Does medical research always prove this?
No, it does not. No one is there to foot the bill for research that will prove spending less money is good for you! If you
take a lot of medications, this plan is probably not for you. Best plan for someone who has to take a lot of
medications is to have an HMO or PPO with low deductible for medications. They do restrict the medications you can
take but in the long run the premiums you pay will be justified by the medication cost savings.
6)        What happens to the money if you don’t spend it on health care: it stays in your savings account. You
have a limit of how much you can deposit based on your HDHP’s deductible and your income (see detailed
description of HAS). If you don’t spend any part of it then it rolls over to next year. You can continue to invest more
money in this account and buildup more of a savings for that possible catastrophic event or you can take your
savings and spend it on a nice vacation to keep you happy, therefore healthy! Or you can pay for periodic
preventive health testing. Some of these, such as detailed metabolic, cardiac and whole body imaging studies,
insurance companies would never pay for. That is not because you are not going to benefit from these tests, it’s
because performing these tests on a mass scale is not “cost effective”. In any event you choose what you want
rather than leaving it up to an insurance company to decide for you. if nothing else it can pay for a lot of Tylenol's
and cough medication and birth control in pre-tax dollars. If you never use it you haven't give it away to an insurance
company and if you really want you can always pay the tax penalty and take it out and use it for some purpose other
than health care.