HSA Insurance Plans and Health Savings Account Explained

HSA Insurance plan is a qualified High Deductible Health Plan (HDHP) featured with a tax-advantaged health savings account (HSA) administrated by a qualified bank or financial institution. Not all health insurance plans qualify for tax benefits included in HSA plans. To qualify, a medical plan must meet deductible, out-of-pocket limit, and HSA contribution limit requirements set each year by IRS.
The core of HSA insurance is that HDHP plans are to cover major medical expenses and health savings accounts are to fund minor eligible medical expenses such as office visits or preventive care services.

Eligible Medical Expenses

Internal Revenue Services defines a list of medical services that can be funded with contributions made to hsa accounts on tax-free basis. Some of them are hospital services, dental treatment, chiropractor, contact lenses, hearing aids, organ donors, psychiatric care, stop-smoking programs, wheelchair and more.
To be paid for, a medical service doesn’t have to be covered by your HDHP plan. In fact, some of them such as contact lenses or eyeglasses are rarely included in individual or family health insurance policies. After buying an HDHP and opening HSA you can pay for health care using a debit card or checks provided by your hsa administrator.

How do Health Saving Accounts and HSA Insurance Plans work together?

HSA insurance works almost the same way catastrophic health insurance does. You pay for medical expenses up to your out-of-pocket maximum including the deductible. After they are paid, your insurer starts to cover health care services.
The main difference is that HSA plans are enriched with the tax benefits if you do contributions to a health savings account and then use them to pay for eligible medical expenses. Any health insurance plan that meets IRS HSA requirements can qualify for tax advantages.

For 2010, HSA requirements are as follows:

For individuals:

• $1,200 minimum deductible
• $5,950 maximum out-of-pocket limit (including deductible)
• $3,050 maximum contribution limit*

For family:

• $2,400 minimum deductible
• $11,900 maximum out-of-pocket limit (including deductible)
• $6,150 maximum contribution limit*

*If you are over 55 years old, you can make additional "catch-up" contributions just like in IRAs. For 2010 the catch-up contribution limit is $1,000.
Each year the above hsa insurance requirements are adjusted by IRS to current economic situation and inflation.

How does a health savings account work?

• You deposit money into the hsa in the amount allowed by IRS in a given fiscal year. The maximum amount of money that can be deposited is the hsa contribution limit. Contributions to health savings account can be made in a lump sum or any amount. Also, there is no obligation as to the frequency of deposits. You, as the account holder, are in the control of the account and the money on it. HSA Contributions can be invested in stocks, mutual funds or other investment vehicles of your choice.
  
• You use contributions to pay for the eligible medical expenses on tax-free basis. Any unused contributions roll over to the next year.

HSA Tax Advantages

• Tax-Deductible Contributions - Deposits made to HSA accounts are tax-deductible. They are deducted from your Gross Annual Income on IRS Form 1040. That means that your taxable income is lowered by the amount of money deposited into the HSA.
• Tax-Free Withdrawals - If the money collected on the account is used to pay for hsa medical expenses, it is not a subject to income tax. However, if the hsa contributions are use for non-eligible medical expenses such as mortgage or rent payments, it is taxed. If you’re are under the age of 65 you would also have to pay additional 10% penalty.
• Tax-Deferred Interest Income - The interest earned on unused contributions over the years is not taxed unless withdrawals are made. As soon as you withdraw the money, it is a subject to income tax in a fiscal year the withdrawal was made.

Catastrophic Health Insurance

Also known as Hospital Health Insurance or High Deductible Health Plan (HDHP), Catastrophic Health Insurance is an affordable option when buying a medical plan. Catastrophic plans are designed to cover major medical expenses while leaving minor health care costs to insureds. It covers hospital care including stays, treatments, emergency room services, and surgeries related to accidents and serious illness such as stroke, heart attack, or cancer.

Typical Catastrophic Health Insurance Features:

• high deductible ($2,000 - $5,000)
• high coinsurance (80/20 - 60/40)
• high out-of-pocket limit ($1,000 - $4,000)
• no copayment for office visits – you pay for the expenses from your own pocket
• no coverage for preventive care services – you pay for common tests, immunizations, or gynecological care
• no coverage for prescription drugs

However, there are catastrophic health plans that may include some of the above health insurance coverage. For instance, the plans may cover some of the routine care services such as Pap smear for women. It is also common to find a plan with co-payments for prescriptions or doctor visits.

High Deductible Health Plan Pros and Cons

Pros:

• Lower premium. More people can afford a catastrophic plan in contrary to traditional health insurance.
• Lower premium increases. Health insurance companies increases their premiums almost every year mainly dueto sky-rocking health care costs. Since catastrophic health plans are cheaper so are the premium rate-ups.

Cons:

• You have to pay for all medical expenses until your out-of-pocket limit is met. With high deductibles and coinsurances, the medical bills you may be responsible for in a given year can reach thousands of dollars.
• People with high-deductible plans tents to give up on preventive care services. Since the routine care is not usually covered under HDHP plans, people try to avoid additional costs and don't check their health regularly.

How much is Catastrophic Health Insurance?

Catastrophic plans' cost as most health insurance plans’ depends on many factors such as your age, zip code, gender, the plan’s deductible, coinsurance, and out-of-pocket limit. The younger you are the more affordable you health insurance can be. The higher your out-of-pocket maximum the less expensive your medical plan is. All the variables affect health premiums.
Choosing a catastrophic plan is just one of many ways to reduce health insurance costs. Usually you can save you between 20 and 40%. A young person can pay as low as $70 monthly for a plan with $2,500 deductible, 70/30 coinsurance, and $3,000 out-of-pocket maximum. Catastrophic plans usually have the same lifetime benefit as other medical insurance plans. Lifetime benefit usually ranges between $3,000,000 and $5,000,000.

Who should buy HDHP Plans?

Catastrophic plans are for everyone who can afford to pay for minor medical expenses but can't afford comprehensive health insurance. High-deductible plan is better then no plan. Most people can afford to pay for office visits but will not be able to cover expensive surgeries or hospital stay costs. Sometimes it just makes no sense to buy a low-deductible plan or plan with co-pays for office visits and never use them. High-deductible plans are health insurance plans for large medical expenses to cover serious illnesses or injuries resulting from accidents.

How do Catastrophic Health Insurance Plans work?

By choosing a high deductible insurance plan, you decide to cover all medical bills up to your deductible plus coinsurance if any. When medical expenses in a calendar year exceed your deductible, then your insurer covers 100% of the remaining costs or a percentage of it. If your company covers a percentage of the costs after deductible, it means that the plan has a coinsurance option which rate usually is between 80/20 and 90/10. Coinsurance is healthcare cost sharing between you and your insurer. It stops after out-of-pocket limit is met. For instance 80/20 means that your insurer pays 80% and you the remaining 20%.
Example:

Let's assume that you have a plan with $2000 deductible, 80/20 coinsurance, and $1,000 out-of-pocket limit (deductible excluded*). If the cost of medical care in the given year is $100,000, you pay only $3,000, and your insurer pays the rest - $97,000. Where did that come from? Your deductible is $2,000 so you pay it in full. Next, you share the remaining costs with your insurer (coinsurance) up to your out-of-pocket limit, which is $1,000. This means that you pay 20% of the remaining costs until you spend another $1,000.

*some health insurance plans include deductible in out-of-pocket limit
The above example is only a simple illustration on how catastrophic plans work. It is not to be considered as a rule to all plans of this type. For details on your plan please talked to your agent.

Catastrophic Health Insurance Alternative

If your catastrophic plan has a deductible high enough to qualify for Health Saving Account HSA plan, you may even save more money. HSA plans allow you to put aside money into an HSA account on tax-preferred basis.  Any money withdrawn from this account to pay for eligible medical expenses are tax-free. Learn more about Health Saving Accounts.

Your Health in your Hands

Choosing the right health plan can save you a lot of money and protect your assents in case of high medical expenses. Choosing to cover preventive care costs, doctor visits, and prescription drugs will reduce your insurer's financial responsibility; however, in return, you will pay lower insurance premium. If you can afford to cover these costs, you may want to buy catastrophic insurance. The first step is to fill out our quote form to compare health insurance quotes from multiple providers.

Difference between Coinsurance, Deductible, Out-Of-Pocket Limit, Copayment and Premium

Health Insurance Terminology

Health Insurance as any other type of insurance has its own terminology without which an effective health insurance comparison cannot be done. Below we explain some of the most important health insurance terms so you can make a smart and educated decision when choosing a medical plan.
All of the terms are costs of having a health insurance policy. Most of them are paid only when using healthcare services. The only cost which you have to pay, regardless of using medical services is premium.

Premium

Premium is the amount of money you have to pay for insurance. Premiums are usually paid in monthly or quarterly installments.
Choosing a medical plan that fits your needs and budget is based mostly on balance between deductible, coinsurance, and out-of-pocket limit. All of the three affect your health insurance premium. In general the higher they are the less expensive your health insurance is.

Health Insurance Deductible

Deductible is the amount of money you pay for eligible medical expenses in a calendar year. After deductible is met, you pay nothing or you share the remaining costs with you company up to out-of-pocket maximum.
Deductibles may vary depending on whether medical services are received in or out-of-network. In some cases, services received in medical facilities out of your providers’ network are more expensive and fall under a higher deductible.

Coinsurance

Coinsurance is a health care cost sharing between you and your insurance company. The cost sharing ranges from 80/20 to even 50/50. For example, if your coinsurance is 80/20, that means that your insurer covers 80% of annual medical expenses and you pay the remaining 20%. The cost sharing stops when medical expenses reach your out-of-pocket maximum, which usually is between $1,000 and $5,000. If your medical expenses in a calendar year excess out-of-pocket limit, then your insurer covers all the remaining costs.
There are medical plans with coinsurance 100%, in which case all the medical expenses are covered by insurer after the deductible is paid. Coinsurance rate may also vary in and out of your health care providers’ network. Usually it is higher when going out-of-network.

Out-of-Pocket Limit

Out-of-Pocket Limit (also known as Out-Of-Pocket Maximum) is the maximum amount of money you may pay for medical services in a calendar year. Out-of-pocket limit may and may not include deductible depending on insurers’ definition of the term. The maximum amount of money you may spend for health care services also may vary whether they are receive in or out-of-network.

How deductible, coinsurance and out-of-pocket limit affect health insurance premium?

The more you’re willing to pay out of your pocket the lower health insurance cost is. The higher your deductible, coinsurance rate, or out-of-pocket limit the more affordable health insurance is. It’s as simple as that. Learn more about other factors that affect health premiums and how you can manipulate them to reduce health insurance costs.

Copayment

Co-Payment or Co-Pay is a fee you pay for doctor's visit. Copayments may also vary depending on whether you seek a medical help in or out-of-network as well as on doctor’s specialty. It usually ranges between $10 and $40.

How a typical health insurance plan works

Below we present a simple scheme of health care costs sharing between insured and insurer. The example plan features: $1,000 deductible, 80/20 coinsurance rate (up to $5,000**), $1,000 out-of-pocket limit (deductible excluded), and $20 copayment.  The example assumes seeking health care services within your company providers’ network. It shows the cost sharing from the insured’s point of view.

* excluding some doctor visits, which may be covered by $20 copayment
** insurance company pays 80%, and you pay 20%.
The above example is just a simple illustration created in order to give you a better understanding of health insurance. In reality, your policy can have different deductible, co-insurance, or co-payment. If you're not sure of how your medical plan works please contact your company or agent.

Ways to Save on Health Insurance Costs

Everyone wants to make sure that they are paying the least amount of money in premiums for the greatest possible amount of health insurance. Here are several tips that you can use to make sure that your premiums aren’t too high, or that your coverage isn’t too extensive.

1. Compare health insurance quotes. Insurance rates between different companies can vary widely. The more quotes you can compare the better your chances of finding an affordable medical plan. This is the most effective and fastest way to save on health insurance expenses.
2. Increase your out-of-pocket limit. Choosing a catastrophic health insurance plan with higher deductible and coinsurance limit can decrease you monthly payment significantly. If you can afford to pay out of pocket for smaller medical costs like the occasional copayment or items such as eyeglasses, corrective shoes or routine checkups, then doing so can greatly reduce your premiums. This still leaves you covered when it comes to the unforeseen health events that are often the most expensive to deal with. A higher deductible also met in Health Saving Account (HSA) plans will lower your premiums but at the same time will also increase your financial responsibility if anything bad happens to you or your family member.
3. Consider living in suburbs. Health insurance rates greatly depend on the area you live in. Insurers charge higher premiums for those who live in big cities in contrary to people living in small towns or villages. Living in a city is exposed to higher health risks. The likelihood of having a heart attack or being involved in an auto accident is lower in less populated areas.
4. Take a careful look at the insurance provided by your employer. Many individuals take the path of least resistance and simply sign up their entire family for the health insurance offered at their workplace. But did you know that many companies won’t cover premiums for anyone other than the workers themselves? This can add up to expensive additional costs for each dependent listed on the policy. If you need to take care of more than just yourself in terms of health insurance, then it can often pay to look elsewhere for coverage. Careful shopping of individual health insurance plans for family members can leave you with more money in your pocket.
5. Investigate government health insurance programs. Don’t assume that because you are making a decent salary that you don’t qualify for free insurance or a substantially discounted rate on your health coverage through government programs. If you’re seriously sick or recently have been a victim of stroke or cancer, changes are that you might be declined individual health insurance coverage by private insurers. In such cases, it pays to check with your state if their health assistance plans cover the pre-existing conditions you might have.
6. Change your lifestyle. If you have any risk factors in your life that could set the stage for ill health – such as smoking or obesity – making positive steps to change towards a healthier lifestyle can definitely reduce your insurance premiums. Smoking increases your health insurance premium even by 50% depending on your age and medical plan you have. Participating in a wellness program through your company or a local gym is a great way to prove to your insurer that you are actively managing your own health.
7. Don’t pay for options you don’t need. Your insurance company might be charging you greater premiums for options like being able to choose any doctor you want – which isn’t really all that useful if the doctor you prefer is already on their list of healthcare providers. See if you can knock down your costs by limiting your ability to browse a wide number of doctors. At the same time, make sure that the doctors you prefer are covered by your plan and that you aren’t being hit with extra fees as a result of them being outside the insurer’s network.
8. COBRA. When you leave your job, it’s possible to continue the health coverage you were receiving through your employer by paying into a COBRA plan. However, if you have no health problems, you might actually get a better deal through a private insurer, so it pays to shop around when your employment circumstances change.

Now that you know the different saving tips, use the most effective one - compare health insurance quotes from multiple companies and see how much you can save

Types of Health Insurance Plans

There are many different types of health insurance – so many, in fact, that it can seem like a jungle of choice, especially when trying to decide which type of coverage fits you best and is the most affordable to you. Let’s take a look at some of the most common health policies available and what makes them appealing.

When looking at health insurance, you can put almost every policy out there into one of two main groups: Managed care and Traditional care.
Managed Care Insurance

This type of health insurance has grown in popularity largely as a result of the soaring cost of medical services. Insurance providers prefer managed care as it allows them to reduce their own costs, and so they have created a number of different managed options in order to appeal to the widest possible spectrum of customers. Along the way, this type of insurance has become the most popular form of health coverage. The primary hallmarks of a managed care policy include the use of a specific network of medical practitioners that policyholders are required to use in order to obtain maximum financial benefit from their plan.
Preferred Provider Organizations

Preferred Provider Organizations or PPOs are notable for the fact that they entice customers to stay within a defined network of doctors and healthcare providers by keeping the fees associated with medical services low. There is a variety of tools used to do this – in-network doctors might have low co-pays and no paperwork involved, while seeing a professional outside the network forces policyholders to pay up-front and then file a number of forms in order to be reimbursed. The cost and hassle of dealing with healthcare providers outside the network are designed to keep you in line with the insurance company’s preferred medical options.
Point-Of-Service

A POS plan is very similar to a PPO – you are still covered if you choose to leave the network of providers, but the costs and paperwork involved will most likely be greater. There is also the extra wrinkle of a Primary Care Physician, a doctor in your network who essentially handles all of your referrals both in and out of the insurer’s list of preferred care providers. If you refer yourself, be prepared for extra fees, and going out of network will also most likely incur a deductible.
Health Maintenance Organizations

HMO’s are a well known fixture of the managed care world, as they are commonly found in group plans such as what you might encounter at work. HMO’s strike a particular deal with policyholders – in exchange for a small co-payment and a low-hassle experience, HMO’s will provide care within a rigidly defined group of doctors. This helps keep premiums quite low, and can in fact completely eliminate co-pays altogether.

Members of HMO plans must seek healthcare services in HMO network. Services encountered out-of-network are not covered with a few exceptions such as emergency situations. In and out-of-network emergency room visits may require clearance from the insurance company depending on an individual situation. You must choose a primary car physician who then refers HMO members to specialists. You can’t refer yourself to a specialist. You have to receive an approval from the first-contact doctor.
Traditional Care Insurance

Traditional health insurance works in much the same way as car insurance or home insurance. They are designed so that the policyholder pays a certain premium each month for a certain level of coverage from an insurance company. This is usually combined with a deductible, with the insurer paying a percentage or the entire bill that is left over once the deductible is paid.
Fee-For-Service Traditional Care

Most traditional health coverage is now known as fee-for service insurance. The concept is preferred by those who appreciate the freedom that this type of insurance affords them – policyholders are free to choose which hospitals, doctors and healthcare services they want to use. There are also no restrictions on how many times you can go to see a doctor or specialist, letting you get as many opinions as you need. Insurance companies usually insert a few controls into the mix in the form of requiring permission for certain types of emergency room visits, for example. Preventative checkups, examinations, and tests are also usually excluded from coverage.

There are, of course, a few downsides to fee-for-service health insurance. Deductibles can be high, sometimes measured in thousands of dollars. Managing the up front costs of this type of insurance can be expensive, especially if you are required to wait for reimbursement from your health insurance provider. Insurers also often only pay out according to an established fee schedule, where certain types of care are associated with specific maximum fees. Some doctors that you see might charge more than the insurance company is willing to cover, leaving you to make up the difference out of pocket. While the majority of health insurance companies establish a limit when it comes to the maximum amount you will have to pay on your own, this limit can be quite high.
The best health insurance type

It is not easy to say which type of health insurance is the best. Each one of them has pros and cons. It all depends on your individual needs and budget. If you would use price as the only criteria when choosing a medical plan, then HMO would be probably a cheaper way to go due to its limitations such as the requirement of using health care services in HMO network. On the other hand, since HMO network usually has a shorter list of specialists then PPO’s, you might have to wait a long time before seeing the doctor. PPO and POS plans offer a bigger flexibility when choosing an out-of-network specialist but they are usually more expensive.

In order to find a medical plan that’s right for you, it's worth the time to compare health insurance quotes from several companies and choose the right one. The comparison should include not only rates but also the plans features.