Get educated on the latest in healthcare consumerism and price transparency with hot takes and helpful insights from the experts at MMS Analytics, Inc.

Don’t have an HSA? Here’s why you need one.

Since their creation as “tax-advantaged” accounts by Congress in 2003, the prevalence of health savings accounts (HSA) has been growing steadily despite the reality that the health insurance industry doesn’t like them.

Even with the industry floating “Fear, Uncertainty and Doubt” (a.k.a. FUD-factor), consumers are starting to see the light when it comes to high deductibles and HSAs, and it can be easy to understand why.

To learn why the industry wants you to stay uninformed, please read: “Don’t really know what a Health Savings Account is? Then you’re way overdue to fire your broker!”

So what makes HSAs so great?

When you purchase a low-deductible health insurance plan, the carrier charges you more in premium for the first few thousand dollars of coverage than the amount you’d pay if you had paid your medical bills directly.

Here’s an example:

If you have a $0 deductible family plan and you increase the deductible to $2,000, you would get roughly $3,600 back in premium savings to pay a maximum $2,000 in out-of-pocket costs for medical bills. That’s $1,600 of free money! If your family happens to stay healthy all year, you might save $3,600!

Expanding on this simple revelation, it turns out that if you can find a family policy with a $12,900 deductible (the maximum deductible considered HSA compliant in 2015), your premium savings should be about $14,000—equating to savings between $1,100 and $14,000 depending on how healthy your family stays in a given year.

So why wouldn’t you get a policy that guarantees you save money regardless of your health status, but could allow you to save $14,000 each year if you’re lucky?

If you run a business, like me, with a bunch of employees, the savings realized with a health plan design change is far more dramatic. The law of averages tells us that only a small percentage of your employees will have significant health expenses in any given year, and for each of those few families you can expect to save only $1,100. In fact, The US Department of Health and Human Services issued a study recently that shows that the median family, with everyone under the age of 65, consumes under $2,800 of health services per year. So in the most common cases, you will save $11,200 ($14,000 premium savings minus $2,800 median medical bills = $11,200) per family!

In all cases you save by going to the maximum deductible even if every employee had a catastrophic health incident each year!

Based on the information I’ve shared here, and other information relating to individual rates, expected losses, and distribution of health service consumption, your average business of 100 employees can save roughly 37.5% or about $600,000 each year!

So what does this all have to do with HSAs?

A $12,900 family deductible sounds pretty scary to most employees, especially if they recognize that the reimbursement for these costs are all held by the employer. “What happens to me if I have to change employers, or worse, get caught in a RIF and need to go on COBRA?” Potential for leaving an employee with a large out-of-pocket exposure is not a popular idea for responsible employers, let alone rightfully concerned employees. But there is a way to counteract out-of-pocket exposure for your employees.

The solution

Health savings accounts (HSAs). As long as a health insurance plan does not cover the employee for anything in the first $1,300 single/$2,600 family of medical and prescription drug expenses, that employee is eligible to have their employer fund their health savings account for any amount up to $3,350 single/$6,650 family per year. If the employer doesn’t fully fund those amounts, the employee may take a tax deduction for any additional amount they contribute themselves to get to those limits. The HSA is a tax-free savings account, owned by the employee that grows tax-free! The employee can make tax-free withdrawals from their HSA to pay for virtually any out-of-pocket medical expenses. Unused balances in the account grow tax-free into larger savings, and can be invested in similar ways to a 401(k) plan allowing savings to grow rapidly. If a job change occurs, all balances in the HSA are owned by the employees and remain in their accounts. When they reach the age of 65, the employee can make withdrawals in the same way they can in their 401(k), or they can continue to use the money tax-free for health expenses and long-term care insurance.

But wait, there’s more!

Since individuals with high deductibles are responsible for paying more out-of-pocket for medical expenses from their HSAs until a reimbursement arrangement kicks in or deductibles are met, they are more likely to seek preventive care, including annual physicals and cancer screenings (because under the ACA law these costs can’t be subjected to the plan deductible). In general, there’s a new financial incentive for employees to stay healthy so they tend to live healthier lifestyles. In fact, a 2011 study by AHIP (click here to download the PDF of those study findings) revealed that those enrolled in an HSA sought preventive care at higher rates than those enrolled in a traditional Preferred Provider Organization (PPO) plan. Since the industry has reached consensus that preventive care is a major factor in improving our health and lowering costs, chalk this up as another win for HSAs.

Takeaways

In a nutshell, we’re much better off when we increase our deductibles to the highest amounts allowed and then tuck away the premium savings in our HSAs for use when medical procedures are not considered preventive care. We become empowered to reap the rewards that should accompany good health and savvy medical care decisions. When we’re healthy, we save money. When we choose lower-cost providers, we save money. When we do get sick, we have a funded account that completely covers our out-of-pocket expenses, and a health insurance plan that provides great coverage after we exceed our deductibles. We should be designing all of our health plans to reward comparison shopping and healthy behavior.

Mark Galvin’s activities and advocacy around consumer-directed health plans (CDHPs) and health savings accounts (HSAs) have been covered in the Wall Street Journal, People Magazine and a number of other high-profile news outlets.

Not happy about your salary increases (or lack thereof) over the past decade? You might want to blame it on healthcare.

While many factors may be contributing to the lack of salary increases in America, have you considered that one of the biggest culprits might be the rising cost of healthcare? In the past decade alone, health insurance premiums for families have risen 73%, dramatically outpacing increases in family income (read more here about the study by The Commonwealth Fund). At the big picture level, $3.6 trillion (yes, trillion) was spent on healthcare in the U.S. in 2013 (our entire GDP was $16.72 trillion). If you’re having trouble grasping this amount of money, here’s another way to look at this total (hopefully without sending you into shock): the U.S. spends on healthcare the equivalent of Germany’s entire GDP ($3.6 trillion) or over a third of China’s GDP ($9.33 trillion). For a complete list of global GDPs, almost all of which are exceeded by our healthcare spending alone, click here. Now take it in for a moment; it’s a lot to digest.

When healthcare costs account for nearly a quarter of our GDP, it’s difficult not to assign it some responsibility for our stagnant wages.

Increases in business healthcare costs have remained far ahead of increases in wages since the 1970s (check out this Huff Post article for some more startling statistics about our healthcare system). And if employers are busy spending their money on the rising cost of healthcare for their employees, that means they’re probably investing less back into their company for growth and salary increases. It’s just simple math.

And it can have a snowball effect. Less money spent on growth and salary increases means fewer new jobs being created, and less disposable income for American families. When the healthcare system siphons all our wealth, our economy suffers overall.

Employers have tried to control the amount of money they invest into healthcare by switching their employees to high-deductible health plans (HDHPs). These plans expose the insured to higher out-of-pocket costs, but they feature much lower premiums, so they’re more affordable for businesses. Still, healthcare costs continue to rise across the board, severely limiting the potential for salary increases.

You may be thinking at this point, “Isn’t all of this out of my control?” Well, the truth is, while healthcare costs are on the rise, what you pay isn’t out of your control. As price transparency continues to illuminate the healthcare industry (you should read our blog post on this subject), American medical consumers (businesses, families, and individuals alike) can be part of the solution of driving down healthcare costs. Being able to choose your medical care provider based on quality and price empowers you to pay less for great care, which means less money out of your pocket. Since health insurance premiums are based directly on total medical claims, paying less for our care also means that we’ll start seeing reductions in premiums. And that overall reduction in healthcare costs, in turn, could lead to some long-overdue salary increases.

This is why it’s so important for everyone to take an active role in our healthcare. The industry has us in a pretty tough spot right now. But isn’t it empowering to know we have some control of our future?

Steve Forbes Prescribes Price Transparency to Remedy Our Skyrocketing Healthcare Costs

Currently, the patient isn’t the “customer”; so says Steve Forbes, Editor-In-Chief of Forbes Magazine. Transforming patients into customers also means empowering them to shop for lower-cost healthcare like they already do for other purchases.

Sadly, that hasn’t been possible so far—you can’t Google to find the lowest-cost, high-quality provider that’s also nearby for a medical test or procedure.

Video: What If Everything Worked Like Healthcare

What is also sad is that healthcare prices vary wildly among providers for the exact same procedure. To make things worse for the patient, the old rule—you get what you pay for—simply doesn’t apply to healthcare. Research shows there is no correlation between quality and price in the healthcare industry.

Empowering your employees to shop for lower-cost healthcare procedures can lower your organization’s total healthcare costs—and, also help with employees’ out-of-pocket expenses. In fact, Steve Forbes wrote about it in the November 29, 2016 issue of Forbes Magazine:

“– Transparency for prices. Require hospitals and clinics to post their prices for all treatments, medications and services. The disparity in pricing can be astonishing. An enterprising entrepreneur, Mark Galvin, who is also CEO of MyMedicalShopper in New Hampshire, found that the fee charged by hospitals and clinics in the region for a nuclear stress test for heart patients ranged from about $1,450 to $7,000. 

The third-party-payer system and the lack of pricing transparency is why health care doesn’t experience the fast, relentless pressure of lowering costs that’s routinely found in other markets. 

If wide-screen TVs had fallen under the auspices of today’s medical system we’d still be paying $10,000 for them instead of a few hundred bucks.

MyMedicalShopper does just that—it is a healthcare comparison shopping platform. The company makes shopping for medical tests & procedures as easy as a Google search, unleashing billions in savings on healthcare costs.

​What’s more, combining MyMedicalShopper with HSA-compatible health​ plans can be magical!

See Is a health savings account (HSA) better than a 401(k)? You decide.

For mature audiences only

Just when you thought we were done talking about health savings accounts, here we are again talking about HSAs. We’ve outlined HSAs before, but new reports indicate that they may be more of a necessity than simply an added benefit. One thing we’ve spent a lot of time discussing is the use of HSAs as a second retirement account, and now there’s even more evidence supporting why that is such a keen idea.

HealthViews recently issued their “2015 retirement healthcare costs data report,” which was highlighted in this Time article. And with the report came some startling numbers concerning healthcare costs and retirement. Reader discretion: The numbers you are about to see may be disturbing.

If you are going to retire this year, you can expect to pay around $133,295 for healthcare throughout your retirement. That’s the price tag for just one individual! And by 2025, medical retirement costs are expected to jump to nearly $165,500 for an individual! That’s a 20% increase over the next decade!

So what do we get for this high price of healthcare? Medicare parts B and D. This kind of coverage includes preventive care and the cost of prescriptions. This price tag also includes a Medicare supplemental insurance policy, a popular purchase among Medicare recipients who are looking for help paying co-pays and deductibles.

Now for the out-of-pocket costs… Oh, you thought that was covered in the hefty price tag we revealed to you above? We’re afraid not. So what does our grand total come to when we add the estimated out-of-pocket costs for dental, vision, and hearing medical services, in addition to co-pays? Let’s take a look at the graph below to compare individual retirement healthcare costs with and without estimated out-of-pocket expenses.

Graph: MMS Analytics, Inc.

The total is approximately $197,477 for a healthy individual when you add the estimated out-of-pocket medical costs. So that’s an extra $64,000 when the estimated out-of-pocket costs are considered. What may be even more concerning is the increase in retirement healthcare costs over the next decade whether you figured in out-of-pocket costs or not.

So with all this bad news, is there any good news? The good news is that there is one way to counteract healthcare costs in retirement, and it’s by setting up an HSA, which you’re probably eligible for if you have a high-deductible health plan. If you already have a 401(k) then you can think of an HSA as a second retirement account, except it’s completely tax-free for medical expenses.

Many employers contribute to their employees’ HSAs, so you might have some help saving. And in case you’re wondering, here are this year’s maximum HSA contribution levels for individuals and families:

Huge opportunities for HSAs in coming era of private exchanges

“Driven by the emerging private health exchange sector, health savings accounts may be poised to quadruple their growth over the next six years,” according to a report published by Consumerdriven, LLC and HSA Consulting Services, LLC. “While health savings accounts have experienced a steady growth rate over the past decade, health exchanges, especially private exchanges, have already demonstrated a tendency to accelerate the rate of HSA adoption among health consumers – both within the employer-sponsored and individual health care markets.” Read more…