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How to off-set health insurance costs: Featured Article
Health insurance is a rising cost for many Americans. Several employers have cut health insurance due to the high premium costs. In fact, employer insurance coverage has fallen from 26.8 to 23.6 percent in one year alone. Several states have enacted or are trying to enact laws that will require all state residents to obtain health insurance coverage. Health care is one of the biggest topics of debate in the political realm. Several people are looking for ways to off-set health insurance costs. Insurance mandates, health savings accounts, and flex spending accounts are all some ways individuals, companies, and the government are working to help off-set the cost of health insurance.
Insurance Mandates
Health insurance is not exactly cheap in America; currently the government is trying to find ways to implement health insurance mandates to reduce costs for everyone. Some individuals who do not participate in health insurance do so voluntarily. Typically these types of people do not purchase health insurance because they do not think they need it or they think they would spend more on monthly premiums than they would get in return from the health insurance.
Health insurance mandates will have a large pool of people and the health insurance risk pools will rely on the hope that most of the members will be healthy, low-risk individuals. These low-risk individuals will offset health insurance costs incurred by the less healthy members. If more high-risk members sign up for health insurance, then the health insurance cost will be increased for everyone in the pool. The more people who leave the pool, the more the cost will increase.
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The purpose behind health insurance mandates is to require everyone to buy health insurance. This will ensure that there is a large, diverse risk pool and the costs for health insurance can be equally distributed among everyone. The financial burden for individual pool members will be lowered and everyone will have health insurance.
Helpful Resources: Insurance Mandates This web site discusses how insurance mandates can hurt or help your healthcare needs. It provides information on how some states have enacted mandates to ensure everyone in the state has healthcare. Health Insurance Statistics Health Saving Accounts Aetna Adding Flex Spending Accounts Flex Spending Accounts Health Saving Accounts Insurance Mandates |
Some of the largest drawbacks to health insurance mandates include the resistance from healthy, low-risk individuals. People who do not require regular doctor visits often do not see the need to participate in health insurance and refuse to participate in insurance mandates. If your state is hoping to employ an insurance mandate, they may have some resistance passing it because of these types of individuals.
The other drawback to health insurance mandates is that some individuals are not able to afford it. Many people now have a hard time affording health care, especially if they are not participating in a group program. This means the individuals states would need to subsidize the cost of premiums for those individuals who have lower incomes, or they would need to work with the health insurance industry to lower the cost of premiums or policies.
More often that not, insurance policies with lower premiums include reduced benefits. They may include higher co-payments or larger deductibles to make up for the loss. Many times, patients may not even be aware that their benefits are reduced or how little coverage they have. Several states are working toward implementing insurance mandates, but only one or two have been successful at this point.
Health Savings Account
So far the most effective method to off-set health insurance costs is to open a health savings account. Health savings accounts were first introduced in 2004 and over 2 million people have joined. Most people switch to a health savings account to save on the cost of large premiums. Health savings accounts have a large tax advantage, versus to paying out-of-pocket for health insurance. In order to qualify for a health savings account, you must participate in a high deductible health insurance plan. The funds deposited in the health savings account are not subject to federal income tax at the time of deposit. The funds in the account can only be used to pay for qualified medical expenses at any time without having a tax liability. If you withdrawal money for personal use, the money is treated like an IRA account.
Many people who participate in health savings account feel they are reducing the growth of health care costs and are increasing the efficiency of the health care system. Health savings accounts allow people to save money for future health care expenses and the patient has control over their health care needs. The patient can select the doctor and the type of care they need without being told they need to be pre-qualified or referred by another doctor before they can seek medical assistance. Health savings accounts are not perfect yet; many opponents of health savings accounts argue that they are worsening the health care system's problems. Their thinking is that the healthy individuals will participate in health savings accounts and the un-healthy participates will continue to abuse the health insurance plans.
Many companies have switched to health savings account plans because they do not include the high premium costs as traditional health care. A health savings account works by making deposits into the account. The policyholder or the employer can make deposits into the health savings account. Employers are able to deposit money on a pre-tax basis and the employee has this advantage as well, as long as they make contributions to their health savings account through their employer. The advantage to making pre-tax deposits is because there is a 7.65% savings to the employer and the employee.
All the money deposited into the health savings account becomes the property of the policyholder. Depending upon which type of health savings account you have, the funds not withdrawn each year will carry over into the next year. If you end your health savings account plan, you will not be able to continue depositing money into the account, but you will be able to exhaust the remaining money.
The money in a health savings account cannot be used to open an IRA or 401k account. All health savings account contributions belong to the account holder and are only deposited into the health savings account.
A large benefit to health savings accounts is that participants do not need approval to use the money in the account. The funds will not be subject to income taxation if they are used for qualified medical expenses. Quite often health savings accounts come in the form of a debit card or checks. They work similar to a debit card or checking account. The funds can be withdrawn for any reason; however you must provide documentation that they are for medical purpose. If you use the money for other reasons, the purchase is subject to a 10% penalty and income taxes. You are required to retain documentation for all qualified medical expenses. If you fail to do so, the IRS can rule that the purchases you made were not for medical purposes and you are subject to a penalty and taxes.
Health savings accounts are a great way to off-set health care costs because they benefit both types of health care needs; the healthy and those who have large monthly expenses for medications. The main reason this occurs is because everything that one party spends on medications and office visits will be credited toward the deductible. Therefore, once you have met your deductible, your health savings account will pay for your medications at the same co-payment of your other medical expenses.
Health savings accounts generally have a lower premium than traditional health insurance. When you have a higher deductible, it lowers the premium because the insurance company is no longer responsible for paying routine health care expenses. The economic theory behind health savings accounts is to begin having the patients see this money as their own and they will consume less medical care and they will shop for bargains and be vigilant against fraud in the health care industry.
Flex Spending Account
Flex spending accounts are quickly catching on with several companies. Many employees are worrisome about health savings accounts due to the fact that a large deductible worries them. A flex spending account also provides a tax advantage to the account holder. An employee will set aside a portion of their earnings to pay for qualified medical expenses. It is similar to donating money into your 401k or simple IRA. The money will be deducted directly from your paycheck and will not be subject to payroll taxes.
A flex spending account is similar to a health savings account, but the main difference is that it is offered with more traditional health insurance plans instead of high deductible plans. Also similar to the health savings account, you will have a debit card or a "flexcard" for health care expenses. You will also need to keep documentation of your purchases for tax purposes. A main difference with a flex spending account is that whatever money you don't use at the end of the year, you will loose.
No matter how you decided to save on medical expenses, be sure to shop around. You can off-set medical costs by asking your doctor to prescribe generic prescriptions instead of having the name brand drug. Health care is a must in our society, but not at the expense of 80% of your paycheck. Be sure you have looked at all the options available before you sign up for health insurance that you cannot afford.
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