Finance Tips

If you have been asking questions about healthcare coverage you have definitely heard about health savings accounts (HSAs). Some people advocate that they are the next step in the domain of health coverage, while the others believe that only healthy and rich citizens can benefit from such plans. Before answering these questions it is better to learn what HSAs are in essence and how do they work.

What is a HSA?
A typical health savings account is comprised of two elements:

1) Savings account with interest bearing:
– Yearly deposits of up to $2,900 ($5,800 in case of a family) introduced to the savings account are to be taxed. The money deposited will usually roll over on a yearly basis. However, the money you withdraw from the account for healthcare purposes are tax-free. So are any withdrawals after you officially retire.

2) Healthcare coverage plan with a high deductible
– The minimum deductible amount should be not less than $1,100 ($2,200 in case of a family). That is the amount of money to be paid out-of-pocket before getting the actual benefits.

– When the annual deductible is paid the actual coverage kicks in. You will have to pay all the specified co-insurance and the plan will cover all that remains.

– The overall amount of money to be paid out-of-pocket is limited to $5,600 ($11,200 in case of a family). In other words, after you have spent $5,600 on healthiness services your insurance company will pay for all health costs exceeding that amount.

What are the pros of health savings accounts?
– Because of the fact that any money withdrawn for healthcare use is not taxed, HSAs are a good way of saving more money in your pocket.
– In case you keep the funds without withdrawing them from the account you will have more money after you retire. And since you can freely withdraw the money for any reason after you turn 65 it is a good additional source of retirement money.
– Cheap health insurance plans with higher deductibles have lower premiums than typical plans.
– HSAs don’t depend on your working place and you will keep it the same no matter what.

What are the cons of healh savings accounts?
– Those who have substantial needs in healthcare services will find little use in HSAs since they provide main benefits when the money is kept in the account for an extended period of time.
– People with serious health issues will find it hard to get high-deductible insurance plans, especially if they were already denied of typical plans.
– Some HSAs have additional fees that in sum can make the plan quite costly for the customer.
– Because of high out-of-pocket expenses people tend to go without care, which usually results in complications and more serious and expensive health concerns.

Will a HSA be useful for me?
In case you have no serious health problems and are able to pay the required out-of-pocket expenses than HSAs will definitely be a good option for you. However, you must understand that HSAs require you to be more conscious about your medical costs and the coverage provided by these accounts is much less comprehensive and diverse than with typical health insurance plans. Having an active position in managing own healthcare is a must with HSAs, so if you’re not ready for that then it will be not of a much use to you.

Myth: Standard policies will pay for flood damage.

Fact: None of standard insurance policies will cover any damage resulted from a flood. In case you have the need for flood coverage you should purchase it separately or include it as a weaver to your standard policy.

Myth: The medical payment coverage included in the insurance policy will pay for my and my family’s medical costs.

Fact: This type of coverage will pay for the injuries that someone other than you or your family members (guests, neighbors, visitors, etc.) had sustained while being on your property. However, your homeowners coverage won’t take effect if it’s you or someone else from your family. In such a case standard health insurance plans are employed.

Myth: In case my house is devastated the insurance company will pay as much money as I tell them my house was worth.

Fact: If it occurs that your house gets devastated due to a various reasons (explosion, fire, tornado, etc.) the insurance company will only cover your lost items and the house itself if you provide all the necessary information such as purchase price and serial numbers of all the items that were lost. Of course, it’s impossible to provide such information from memory after the house was destroyed. That’s why your insurance agent is likely to recommend you having an inventory of all the items (especially valuable ones or equipment) stored in your house, and having a copy of it in different places. This way you make sure that you will be covered to the right extent and the insurance company assures that there is no fraud with your claim.

Myth: If my house gets robed things like jewelry will also be paid for.

Fact: It is true that such valuables like jewelry are covered with your homeowners insurance. However there are limits to the amounts the policy will cover such things, with most insurance companies putting a cap of $1500 on all the valuables that are lost due to fire or burglary. In case you think that it’s too little to cover the actual value of your jewelry or furs you should buy additional coverage for such items.

Myth: I should lower my coverage if I want to get cheap home insurance.

Fact: Saving money doesn’t necessarily imply that you have to cut down the most important aspects of insurance coverage. The whole purpose of having an insurance policy is to be adequately covered in case of damage delivered to your house. You can use other more effective methods of cutting your insurance costs such as installing security and fire alarm systems in your house, or getting your home insurance from the same provider as auto or health insurance. This will usually give you great discounts.

Myth: Can I use the purchase value of my house as the dwelling coverage amount when defining the amount of insurance coverage for my policy?

Fact: It’s the most common mistake the homeowners make when purchasing insurance for their house. The main catch is that the purchase value of your home is comprised of both the value of the house and the land it’s built on. And it’s evident that in case of a fire, storm or any other even that might destroy your house, the value of the land should not be reimbursed. That is why you should use the replacement value of your house as the dwelling coverage for the insurance policy. The easiest way to calculate the replacement value is to multiply the square footage by the construction costs in your area.

You want to insure your health and ask your insurance agent to offer you a good policy. You are given quotes and start thinking about buying a certain plan when the inevitable question is asked “What type of plan do you want to purchase?” This question has left many first-time insurance shoppers confused as they didn’t know about any plan types before. Too bad, because by choosing the type of insurance plan you will pay for determines how your coverage will be distributed as well as how your medical services will be provided. And as you may guess this is crucial when it comes to insuring own health.

But do not worry, this article will explain the essence behind each coverage plan type you can get in the US so the next time you will be asked the question of plan types you would choose the perfect plan to meet your requirements.

HMO (Health Maintenance Organization)

HMO plans are the most popular type of managed care distribution these days. They provide a wide spectrum of healthcare services you can receive for a reduced fee or free of charge. But the main catch is that you can receive them only at specific locations and from specific professionals. And you will have to choose a primary care physician (PCP) who will refer you to other professionals when needed. Without your PCP’s affiliations you won’t be able to receive coverage for the services you took. Neither will you be covered for the costs if you address someone outside the network.

PPO (Preferred Provider Organization)

PPO insurance coverage is quite alike to HMO. This type of managed care also requires you to choose a PCP, however you have more options when choosing this doctor. This is especially useful to those who have a good relation with their family doctors who might be outside the insurance company’s network. Moreover, you have fewer restrictions on out-of-network services, still you will eventually pay more for them if compared to in-network services.

POS (Point of Service)

POS health insurance plans also require you to choose a primary car physician. But you aren’t restricted to a network your insurance company has. Still, it will be impossible for you to get individual health insurance coverage if you don’t get a referral from your PCP before visiting any other doctor.

EPO (Exclusive Provider Organization)

EPO health insurance coverage is almost the same as HMO plans. There’s a PCP you have to get a referral from in order to visit a specialist and there’s a network of physicians and facilities you are limited to. The only difference is that you pay only for the services you received, while with HMO plans you have to pay a regular monthly fee.

Fee-for-Service

This type of insurance coverage is the oldest out there and least complicated to understand. You have no restrictions on where to get your care or whom to address. You only pay for the services you receive when needed. However, you get less coverage with such plans and your overall expenses tend to be higher than with managed care plans.

The widely-discussed reform of healthcare industry in the US owes much of the stir around it to the simple fact that having your health insured in our country isn’t affordable for millions of people of different demographic groups. In other words, it’s just too expensive to be within the family budget of most US citizens. But how much does it cost to get your health insured these days, anyway?

This strongly depends on several factors that may vary your cost significantly. Things like your health condition, age, workplace, location, income and other live factors play a very important role in shaping your final rates. Not to mention the provider you’re getting your coverage from. The form in which you get your health insured also plays a crucial role, because getting your insurance in a group from your employer usually costs less than if getting it on your own.

But what comprises the final insurance costs?

Many people get confused by the fact that there are more elements to insurance costs than just the rates you seen when quoting your price. Here are the most important of them:

Premiums

Premiums are periodic fees (usually, monthly) that have to be paid to the insurance company for receiving any medical services under your plan. If you have an individual plan then you are paying your premiums on your own. If you are covered under a group plan at work, your employer pays the premiums, usually requiring you to pay a small part of this amount. Premiums depend on your health condition, your age and your income status. Premiums also vary significantly between insurance companies, so you’d better spend some time on comparing health insurance quotes before you sign your plan.

Out-of-Pocket expenses

Out-of-pocket expenses are all the additional costs of health insurance plans that are extended beyond premiums. These usually include deductibles, co-payments and co-insurance. With some plans these expenses can be limited to a maximum amount, while other plans have no limitations at all, so be on the lookout for that.

Deductible is the amount of money you have to pay on an annual basis before your actual coverage kicks in. You will most commonly encounter them in PPO plans for the services received outside the network. And as with other types of insurance products, you will have to pay lower premiums if your deductible is higher.

Coinsurance is the part of the medical cost you have to meet after paying the annual deductible. It is usually 20-30% of what you pay for the services when going to the doctor.

Co-payments represent a fixed fee for certain services within your plan. In many HMO and PPO insurance plans co-payments are set for things like doctor’s visit or prescription medications.

And what are the average costs?

• Across the US, the premium is $2,985 for individual health insurance and $6,328 for a family plan.
• The annual premium differs significantly between states. If a family in New York had to pay $13,296 as an annual premium, the very same plan in Iowa was worth $5609.
• The amount of deductible paid has a strong effect on the annual premium. A family plan that had no deductible had a premium of $12686, while a $10,000 deductible shed this amount more than in half, with $5380 to be paid.

Let’s leave the politics of healthcare reform to one side and focus on a proposal to change the law to allow free market competition between insurers in different states. A policy consistently mentioned by the Republican party is to break the state monopolies in the insurance market. Since the 1800′s, the individual states have claimed the sole right to regulate the sale of insurance within their own borders. Each state has asserted the right to license insurance companies and to set the terms on which they can conduct business. This has led to a patchwork of different sets of regulations with each state creating unique laws. In turn, this forces an insurance company to set up separate subsidiaries to trade in each state. No licensed company can sell a policy to someone who has a residence in another state. There was a brief moment in 1944 when a decision of the Supreme Court allowed the possibility of federal supervision. But the lawmakers in Washington immediately changed the law to retain state control. Why is this a bad thing? The national insurance companies have divided up the states between them and choose not to compete against each other. This keeps the number of insurance companies in each state artificially low and, because there is no real competition, premium rates are higher than they should be for weak policy terms.

You are reading this article on the internet. When online, you can buy more or less any product or service across state or national boundaries. Although there are some restrictions, e.g. some states limit your right to import drugs from foreign countries, there is an almost free market where you can search for the cheapest price and buy whatever you need. There is no possible economic justification for retaining this historical privilege for insurance companies. All it does is preserve their ability to maximize their profits at your expense. For example, in Minnesota three insurance companies dominate 80% of the market for health plans. There is no doubt that, if more companies entered the market, the premium rates would fall. During his run for President, Senator John McCain was in favor of free markets for health plans. President Obama supports it and the proposal is in both versions of the healthcare reform bills currently stalled in Washington. But because the Republican party’s only policy is to oppose everything the Democrats propose, it seems even this simple change in the law may be lost. What will the result be? The anticompetitive behavior of the insurance industry will continue and you, the consumer, will suffer.

Could the law change tomorrow and allow everyone access to cheap health insurance wherever it can be found? The problem is that the states have different sets of regulations and compliance leads to different costs. The playing fields are not level. So, premiums are significantly lower in those states which have the fewest consumer protections. It would not be fair competition if people living in Minnesota, which has strong consumer protections, could all get health insurance quotes from states with little or no consumer protections. The only way in which there could be a free market is to have a single set of federal regulations for the sale of health insurance plans. Sadly, the political parties do not want to talk about this even though we would all benefit. In the US, the political elite’s interests do not match the needs of the ordinary citizens.