May 14, 2007


Look for ways to offset costs of health care (Michael Miele, 5/13/07, Bradenton Herald)

Consumer-driven health care is characterized by accounts that participants use to fund everyday medical expenses not covered by their health care plan. With direct access to dollars to manage and spend on health care, employees learn to shop around and spend their money in a cost-conscious manner. These accounts are coupled with high deductible health plans that provide coverage for more serious medical problems.

The most popular plans are Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA). The cost of consumer-driven health plans - such as health savings accounts or health reimbursement arrangements - increased by an average of 2.8 percent from 2004 to 2005, according to the survey of 152 major U.S. employers. That compares to an 8 percent increase in total premiums for health maintenance organizations, an 8.5 percent increase for point-of-service plans and a 7.2 percent increase for preferred provider organizations.

A Health Savings Account (HSA) is a special account owned by an individual used to pay for current and future medical expenses. HSAs are used in conjunction with High Deductible Health Plans and offer many advantages. Some features include:

• Tax-deductible deposits

• Tax-deferred interest earned on the account.

• Tax-free withdrawals for qualified medical expenses.

• Carryover of unused funds and interest from year to year.

• Portability; the account is owned by you and is yours to keep - even when you retire.

Posted by Orrin Judd at May 14, 2007 7:02 AM

HSA's sound good, but unless employers match contributions or transfer their current medical insurance coverage as pay increases (perhaps combined with an automatic enrollment), I don't think we'll get the coverage we need.

I consider myself fiscally responsible and frugal, but I would have a hard time finding funds to contribute in addition to funding my 401(k)/IRA (not to mention any Coverdell education accounts if I had children). Extra money needs to come from somewhere, especially since it's critical to encourage early contribution to gain the advantages of compound interest.

Furthermore, withdrawals would occur much earlier than with retirement funds. Medical expenses won't wait until after you turn 65. With a shortened time horizon, a person will need to diversify into lower return funds to protect the money. So we can't compare them to historical 401(k) returns.

So this is good, but still incomplete for most Americans.

Posted by: Chris Durnell at May 14, 2007 1:01 PM

Let's keep in mind the point of HSA's is to introduce market forces to the healthcare industry as a whole. The account is not a supplementary retirement account, those funds are intended to be spent on healthcare at the owners discretion. The tax advantages, carryover, and portability characteristics are there to encourage the adoption of the accounts.
Chris - HSA's done right are substantially less expensive for an employer than traditional coverage. If your employer is not willing to chip in to fund your account, you need to be asking why at every quarterly (or more often) meeting - or polishing up your resume.

Posted by: flanman at May 14, 2007 1:43 PM