Selling the High Deductible Health Plan; competing goals, save money or save for retirement

2013

The HDHP, sometimes referred to as consumer driven health care, (a true misnomer) is here to stay. Employers are convinced they are the salvation for high health care costs – surely I jest.

Usually coupled with a Health Savings Account (HSA) these plans are also seen as a way to save for health care expenses in retirement. Funds in the HSA that are not needed to pay out-of-pocket health care costs are invested and accumulate for future use, even when employment ends.

However, the desire to lower costs in the short run through high deductibles and out-of-pocket costs is in direct conflict with the goal to accumulate HSA funds for the future. The most likely way for this to work is for the individuals enrolled in such plans to be healthy and wealthy.

The problem is that to cover out-of-pocket costs, average families will use HSA funds on a regular basis thereby leaving less each year to accumulate and invest. Depending on the plan design, having a baby or a modest childhood accident can wipe out a HSA. The exception of course is the family that uses little or no health care costs (or with sufficient financial resources to pay out-of-pocket costs outside the HSA), but that family is not saving the plan money by being in the HDHP in any case.

To have any chance of meeting this dual goal the employer must generously fund the HSA in the early years of participation so a reasonable reserve can be established. And, of course, the participant must also fund the HSA to the extent possible (which is not that easy for many families). This means that employers interested in a high level of participation and long term savings from all that is promised by the HDHP should contribute at least the bulk of first and perhaps second year savings to the employee’s HSA – 90% of projected savings!

Before jumping on the HDHP and HSA bandwagon employers and employees should be sure of their goals … and do the math!

Based on a new report from the Employee Benefits Research Institute, workers with a high deductible plan with an HSA are higher income, better educated and healthier than workers with traditional health coverage.

From the IRS:

Annual contribution limitation. For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,250. For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,450.

High deductible health plan. For calendar year 2013, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,250 for self-only coverage or $12,500 for family coverage

For more details about the Health Savings Account, check out this website.

Related articles

• Selecting the health plan best for you is not going to be that easy (quinnscommentary.com)