HSAs Provide Stability and Solutions as Health Care Changes

Thirty years ago, when I started working in the health care industry selling health insurance to business owners, that sector of the economy was booming, and all of us benefited. Across the nation, small-business owners, as a group, were growing at a breakneck speed. The Internet did not even exist until a few years later. Cellphones were a new invention. My first one was the size of a briefcase and weighed around 15 pounds, and service cost a $1 a minute.

Around 1987, a family could purchase a reasonable health insurance policy for around $300 per month with a $400-$500 deductible. That same policy would be around $1,800 per month now. On average, 80% of the bill was paid by the insurance company, while around 20% was paid by the family. Maximum out-of-pocket costs rarely exceeded $1,000. Typically, the insured would pay for doctor visits and prescriptions while insurance was left to cover major issues: cancer, heart attacks, hospitalization, serious illnesses and other concerns.

What happened next began the downfall of health care and the insurance industry as we knew it. Large health care companies approached large employers and introduced them to HMOs. Things sounded great. With a $5 co-pay, Americans went to their doctors more often, even for minor ailments. On the other side of the coin, insurance companies induced some doctors to join their plans by paying them a capitation fee of $15-$20 per month for every patient who went to them. It was a great way for doctors to build up their practices and get paid, even if they did not see patients.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

How we got in a health insurance bind

All of this sounded good, but problems quickly emerged. The low co-pays ensured patients went every time something was wrong, no matter how minor it was. As usage went up, doctors found they did not have the time to treat the patients who needed their attention for major problems. This caused some doctors to discontinue participating in HMOs because they could not treat patients at the level they wanted since they were dealing with minor ailments.

The Affordable Care Act, also known as Obamacare, made things even worse. Despite claims that it would make health care more affordable, costs for many consumers actually skyrocketed (opens in new tab). With some in Washington now calling to reduce penalties issued for not signing up for insurance, it appears likely that the only people who will enroll under the Affordable Care Act will be the ones who face major concerns, making costs go up.

As the largest payer of health costs, including insurance premiums and doctor and hospital costs, the federal government also makes things more expensive in other ways. Increasingly, doctors and hospitals are growing tired of fighting the federal government over reimbursements, so they jack up their own prices higher than they should be, knowing they will have to discount their costs during the reimbursement process.

Let me offer an example. A woman I know suffered from an irregular heartbeat, leading to a heart monitor being used for a month, with the data sent to a hospital in another state. The provider sent a bill to her for $7,000 for these services. When the patient objected and called in to complain, the provider asked if $400 was better. Needless to say, the patient said yes and quickly paid that bill.

This is just one case in point, but not everyone is as lucky as this woman was. If you are a private payer, you might get stuck with a high bill because you don’t have insurance and you may not receive a discount.

HSAs can help consumers in several ways

With all the confusion over the future of the Affordable Care Act and health care in general, investors need to keep health savings accounts (HSAs) in mind. If you have a plan with a high deductible or an HSA-compliant health insurance plan, in 2017 you can, if you are 55 or older, put up to $4,400 for yourself or $7,750 for your family into your HSA every year (opens in new tab) to pay for doctor visits, your co-pays and other health expenses. And if two members of your family are 55 and older, together you can give up to $8,750 to your HSAs per year.

Contributions to HSAs are done on a pre-tax basis, making it a good tax tool, as it reduces your taxable income. Increasingly, large employers, including state governments, are embracing HSA-compliant health care plans, with their higher deductibles and lower premiums. Many people are opting into HSAs, especially as larger companies help contribute to them.

With more options and flexibility, HSAs can provide a boost for employers, freeing up more funds to hire new employees. Large businesses and small-business owners should at least consider looking at insurance plans that are HSA-compliant. They will find their costs will be lower across the board.

They’re also popular with investors and employees for reasons other than their tax benefits:

• Unlike flexible spending accounts (FSAs), people with HSAs do not need to spend all their funds in the account each year or risk losing them.
• You never lose your money in a traditional HSA, though an investment HSA is a different matter.
• If you continue to fund your HSA until you are 65, you can use that money to cover your Medicare supplement premiums, prescription drug costs or any medical bill you incur.

HSAs also give consumers more choices in their health care by letting them decide how that money is spent. If more Americans opt to use HSAs, health care costs should drop because more competition could lower prices. Simply put, HSAs can provide a boost to reining in health care prices and for employers. They also offer investors a nice vehicle to reduce their tax burden while helping boost their health care options.

Kevin Derby contributed to this article.