English
Consumer-Directed Insurance - You Control Your Care
Posted on Apr 02, 2013 by Ailee Slater (G+)
For many Americans, especially healthy and young Americans, health insurance doesn't exactly make sense. Why pay hundreds of dollars every month for the unlikely eventuality that a sudden illness or injury will occur? Surely there must be a better way; a health insurance system to provide preventative care and a dash of emergency coverage, designed for people who don't often need to go to the doctor.
Actually, there is such a system - it's called consumer-directed health care.
A consumer-directed health plan offers non-traditional medical coverage, and may be very appealing to generally healthy Americans not grappling with the monthly expenses of a chronic health condition. A consumer-directed health plan is first of all a form of high-deductible insurance, meaning that the policy-holder will pay at least $1,200 per year toward medical expenses; only then will insurance kick in to help cover costs. If a high-deductible policy holder breaks her leg and requires a $1,000 visit to the emergency room, that money will come straight from her pocket, with no help from the insurer.
Although high-deductible insurance may sound expensive, it's actually not. High-deductible plans offer smaller premiums, helping customers to save around $1,000 per year from lowered monthly payments alone. A high-deductible plan is therefore quite appealing to people who don't generally incur high health care costs, and would prefer to pay less money per month.
Lower health insurance premiums are likewise attractive to businesses. Just this week, a report by Kaiser News detailed the choice of a family bagel business that switched to high-deductible insurance for employees, and managed to lower monthly premiums per employee from $173 on a normal plan to just $43 through high-deductible insurance. Savings such as these may be especially appealing to small businesses that will soon be required by the Affordable Care Act to cover employees' health insurance for the first time.
Importantly, most high-deductible insurance plans are linked to a Health Savings Account, and it is these two elements that together form a consumer-directed health plan.
A Health Savings Account (HSA) is similar to a personal savings account, except that the money saved can only be used to pay for health care expenses. An individual can contribute money whenever they wish, however no more than $3,250 may be added annually. Employers may likewise add funds to this account, either in place of paying for an employee's premiums or as an additional contribution alongside a high-deductible health plan.
The biggest advantage to using a Health Savings Account, as opposed to traditional health insurance, is tax deductions. Whatever money is deposited into the HSA can be deducted from annual income taxes, leading to the potential for big savings every year. What's more, HSA contributions from an employer are not taxable as part of an employee's yearly gross income.
The pairing of Health Savings Accounts and high-deductible insurance is known as consumer-directed health care, because this dual system gives people more choice, and in some ways more responsibility with regards to health services. Consumers must decide how much money to add to their Health Savings Account per year, by making an individual assessment about potential health needs and costs in the future. Because deductibles are high, a user of consumer-directed health care must assume more responsibility in the case of an emergency medical situation, and be prepared to pay for services out of pocket if their Health Savings Account does not have sufficient funds.
Of course, there are many benefits to having more choice and direction over one's own health care. With a Health Savings Account, a patient can choose alternative forms of medicine not normally covered by insurance - traditional Chinese medicine, homeopathy or acupuncture, for example. Because preventative services are still covered by high-deductible insurance plans, people with a consumer-driven health plan will often make better use of cancer screenings and general wellness visits, in an effort to avoid high health costs coming out of an HSA in the future. And again, there is the financial incentive - the group Health Savings Accounts for America estimates that an individual may be able to save as much as $5,000 per year by switching from a traditional insurance plan to consumer-driven health care.
With all of these advantages, why isn't consumer-directed health insurance more popular? To begin, linked high-deductible/Health Savings Account plans have only been available since 2003, when the government legalized the formation of tax-free medical savings accounts. And in fact, consumer-directed care is indeed growing in popularity - according to a recent report from the Robert Wood Johnson Foundation in conjunction with Stanford University, use of consumer-directed health plans rose nearly ten percent between 2009 and 2011.
The report also found that high-deductible/HSA plans are becoming more common in particular amongst high-income Americans who understand and take an interest in their health care and treatment options. Saying that, however, there is certainly a market for this type of insurance amongst Americans of all incomes - when researchers from the aforementioned report presented people with traditional and consumer-directed health plans side by side, most people chose the consumer-directed plan, indicating the potential for large scale growth of high-deductible/HSA insurance plans in the future. This growth may be especially noticeable as more people and businesses purchase insurance for the first time in order to comply with regulations of the Affordable Care Act.
Still, consumer-directed health plans are not yet perfect. The Robert Wood Johnson Foundation report also calls attention to the need for insurance plans that provide more information and resources to consumers; after all, a major tenant of consumer-directed health care involves the consumer being able to examine statistics on treatment and results, in order to choose the best type of care. Also, more research may be needed to ensure that people of all income levels experience the same positive benefits already seen with current, mostly high-income consumer-directed health plan customers.
It is an exciting time for health insurance in America, and consumer-directed health plans are an excellent example of how innovation and competition have come together to give insurance customers more choice in making important financial and health care decisions.