Health Savings Accounts

Health by Adam on 2008-06-19 03:47

Health insurance is seriously fucked up in the US. This supposed “free market” system is actually a perverted mockery of everything a true capitalist holds dear. And the link between health insurance and your employer is stupid beyond fathoming.

Normally I show my dissatisfaction with a bad system via a simple, quiet, and effective manner: non-participation. I vote with my feet, as the saying goes. Unfortunately, going without health insurance is a very bad idea, so in this particular case that option is closed.

But there’s an option that, while not a complete panacea, has the potential to go a long way to improve things. That option is called health savings accounts, or HSAs. An HSA is exactly like a normal bank account, except that it’s designated only for use on medical expenses, and the money you put into it is not taxed.

To use an HSA, you need an HSA-compatible insurance plan. The rules for what qualifies a plan have to do with high deductables, but you don’t need to understand that: most insurance companies have a few HSA plans, so you can just pick one labeled as such.

The high deductible (typically $1000+) means that you cover the cost of routine care yourself. But in case of a catastrophic situation like a serious accident or illness, you won’t be financially ruined. This is what insurance is supposed to be: a way to share risk of unlikely camality, not a way to obfuscate the payment process for routine care.

Because of the high deductible, the insurance is much cheaper. So whereas you might have gotten a plan that costs $150/mo before, you get an HSA plan for, say, $80/mo. Then you can take the difference, $70/mo, and put it away in your HSA. When it comes time to pay for a doctor’s visit or for some medication, you just whip out the debit card for your HSA and use the cash you’ve saved.

Since this money is pre-tax, you can treat that $70 as costing you more like $40, depending on your tax bracket.

There are two parts to the HSA: an HSA-compatible insurance plan, and the health savings account itself. You don’t get these from the same place. The insurance plan comes from a regular insurance company (Blue Cross, Health Net, etc); the account comes from a bank, like one of these. (If you’re not sure how to find an HSA-compatible health plan, this place has a pretty decent search interface.)

I strongly recommend you choose an HSA provider who gives you the option to invest your savings in mutual funds. If you get an HSA early in life, this means you’re getting even more value out of your money: putting away tax-free money when you’re young and healthy, which will earn 8% or so per year. Then when you’re older and need to access it, you’ll be sitting on a nice big pile of dough.

HSAs are a great option for taking control of your own healthcare. With standard health insurance, you’re always under the thumb of the insurance company. It’s easy to be constantly afraid thath they might refuse to cover some procedure that you need (check out Sicko for numerous anecdotes on the topic). With an HSA, a portion of the money you put toward your health insurance each month stays within your control. You can spend it on whatever you believe is necessary for your health. That could be something as mundane as new glasses, something elective like laser eye surgery or breast implants, or something of life-or-death importance like chemotherapy or heart surgery.

Take control of your healthcare and get more out of your dollar; and at the same time, improve the healthcare system for everyone by introducing patient choice and making costs more transparent. I did.

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