Chris Fleck of Edmonds is among the growing number of people who have rejected increasingly expensive traditional health coverage for a less expensive, more consumer-driven option.
With an inexpensive, catastrophic insurance policy to back them up, Fleck and his wife rely on their health savings account, or HSA, to pay for routine health-care needs.
“It’s very good tax planning,” said Fleck, an agent with Puget Sound Tax Service. “I’m keeping a lot of the money myself, and I’m able to deduct it.”
The couple pay $360 a month for the $5,000-deductible plan offered through Premera Blue Cross’ LifeWise program. They invested $5,000 to open their health savings account with a Wisconsin bank.
The accounts are tax-free, interest-earning trusts designed to help consumers pay for deductibles, co-pays, medications and other qualified health expenses as defined by the Internal Revenue Service. Available through numerous financial institutions, the accounts must be paired with low-cost, high-deductible insurance plans.
Account holders, who have sole control over how money is spent, can deposit up to the level of their health plan deductibles annually. Any money not spent rolls over and follows the account holder from job to job through retirement age.
For healthy people, a health savings account offers many benefits, said David Preston, an insurance broker with Edmonds-based Insurance Resource Group Inc. and board member of the Washington Health Underwriters.
“People are deciding, ‘We don’t need to spend this much,’ ” Preston said, adding that he tells his clients to “do the math and follow the money.”
Fleck, a client of Preston’s, said his family never met the $1,000 deductible on its previous health insurance plan.
“It costs, for my wife and myself out of one pocket, just a little bit more to have insurance and a (health savings) account than it did to have just insurance before,” he said.
Anyone with a high-deductible plan can open a health savings account at a bank or other qualified financial institution.
“It sounds a lot more intimidating than it is,” said Jeanne Varnier, Lynnwood branch manager for Evergreen Bank, which handles the accounts. “Once you have a high-deductible insurance plan in place, you just need a savings vehicle, and eventually you see triple tax savings.”
Payroll contributions to a health savings account are pre-tax dollars, interest earned is tax-deductible, and withdrawals for qualified expenses and post-retirement uses are tax-free, she explained.
“It’s great retirement savings if you’re healthy,” Fleck said. “When you retire and go into the Medicare system, your HSA can be used like an IRA.”
The benefits of an HSA/high-deductible health plan lie in having money left each year to gain interest. So it’s not ideal for people with chronic conditions who are likely to regularly exceed their deductibles, leaving nothing.
Account holders also must do a little paperwork each year, tracking all health-related spending from their accounts, including prescription and over-the-counter medications. The IRS requires a simple form with annual federal income tax reporting, Varnier said.
Finding enough money to open an account could be the biggest stumbling block for many people, according to national critiques. But savings from lower payroll deductions toward premiums can provide seed money. Additionally, many employers who use the accounts reinvest at least part of their corporate premium savings into employee accounts, Preston said.
“Most of our clients are choosing to do that,” he said.
Preston, whose family uses a health savings account, said giving people a financial incentive to transform the way the think about their health is the best way to change behaviors.
To that end, Mountlake Terrace-based Premera offers its clients both incentives – through the LifeWise program – and education on how to live healthier.
“The fact that people have a real stake in their health care spending encourages them to get the information they need to make wiser purchases,” said Premera spokesman Chris Jarvis.
For example, he said, the use of lower-cost generic medications jumps when consumers make decisions about prescription spending.
Preston cited statistics indicating that hospital admissions and stays also drop dramatically and preventive care visits increase among groups of people who use the accounts. He pointed to himself as an example.
“I hate working out, hate it,” he said, but he started doing it anyway to avoid spending money from his health savings account.
Cary Badger, vice president of customer marketing for Regence BlueShield, expressed hope about the impact of HSAs.
“There’s a real victim psychology out there now with health care,” Badger said. “It’s this big system with rising expenses, and consumers feel like they don’t have any control over what they spend or what’s covered. Changing that mind-set is fundamental to changing the way health care is delivered in this country.”
Now is a good time to evaluate how well a current health insurance plan is working and, if it’s found wanting, to research alternatives, Varnier said. Most companies begin considering annual insurance enrollment and renewal in the fall and ask employees to make decisions by year’s end.
Fleck said he already has recommended health savings accounts to “a lot” of his clients this year, particularly small business owners.
Kristin Fetters-Walp is a Lake Stevens freelance writer.
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