Monday, August 16, 2004

Medical Insurance Progress

We may be seeing the biggest change in the medical insurance industry in decades. In an interesting story from yesterday, Blue Cross of Michigan announced that they will be offering Health Savings Account (HSA) plans beginning in January.

HSAs are a result of last year's Medicare bill. Although most of the bill was just another gigantic government handout, there was one little gem, and that's the HSA. A health savings account is similar to a retirement IRA where money can be saved in a tax-free way to pay for health costs. In fact, this money can be invested in the same way it can be in an IRA.

The HSA needs to be linked with a high deductible health plan. Generally the deductible is around $2500. When a person then has a medical expense, the cost is paid out of the HSA and not by the insurance company. If medical costs rise above $2500 in a year, then the insurance kicks in.

What's the advantage of this? It creates a consumer-driven medical market. Insurance premiums are much lower with HSAs and suddenly we're going to become interested parties in the costs involved. The doctor wants to give you that tetanus booster? Well, 'how much is it?', you'll ask. Suddenly we're responsible for our own costs.

Any money put into an HSA is tax-deductible and if you invest the money, it is tax free. A lifetime of saving in an HSA could produce hundreds of thousands of dollars, which can be spent tax-free on medical expenses. If you've got more than you can use in the account at age 65, it can be used at a regular tax rate for non-qualifying (non-medical) expenses.

For an example of how the current health care system drives up costs, consider the following example from columnist Wayne Dunn:

Is there something special about health insurance that makes it crisis-prone? I mean, we never hear about the horrible "house insurance crisis" or the "spiraling cost of auto insurance."

It wouldn't be too hard to create such a crisis though. In fact, let's try to map one out.

Just imagine if politicians resolved that, since automobiles are vital for getting people to work, companies ought to provide for the care and maintenance of its employees' vehicles.

So political pressure is applied to employers-- maybe through the tax code, or perhaps legislation is passed outright; and, before long, auto insurance is restructured to cover not merely accidents, but routine maintenance and service. For a monthly premium and a $10 or $15 "co-pay," your car insurance would cover the cost of an oil change, tune up, new tires, whatever it needed.

Something odd would begin happening though. Mechanics would stop hearing the now pervasive, "How much will it cost?"

Why? Because if all you had to do is plop down ten or fifteen bucks and your insurance paid the rest, why would you care what the mechanic charged? Heck, you'd start taking your car in for an oil change every 1000 miles instead of every 3000. Rather than getting your tires rotated, you'd just have new ones put on. And that rear electric window that won't lower, you'd not think twice about having fixed.

More info is available at HSA Insider.

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