MSAs (Medical Savings Accounts) were originally developed with the self-employed in mind. These are a tax-saving, tax-exempt medical expense-paying, tax-deferred interest-bearing form of IRA. This is great and you know exactly what that means if you are self-employed. If you don't or you're not, read on.

What appealed to many people, self-employed or not, was the concept of a family deductible, as opposed to a per person deductible, and this is inherent in qwhat are now called HSAs - Health Savings Accounts. Ultimately, almost all carriers decided they would make the MSA plan format available to anyone who wanted it, providing they could get through underwriting - same as any other health plan. (HSAs are not in themselves, products; they are concepts, and one must undergo the same medical histroy underwriting for an HSA-compatible health insurance plan as any other type of insurance plan).

The idea of putting money aside in a savings account and ear-marking it specifically for medical expenses isn't new, but few people do it. Everyone likes the idea of having money available for the out-of-pocket expenses, but no one seems to want to be the one who made the money available in the first place!

A L Williams coined the phrase, "Buy term, invest the difference" and the concept was 100% "on-the-money" – but only 10% of those who supposedly agreed with the concept actually followed it. If you have a $1000 deductible, a $2500 or $5000 deductible, and you put that amount of money aside in a savings, letting it earn interest, then use it only for medical expenses, the chances of having some or most of that money still in that account at the end of the year are statistically better than 95%.

Several carriers who offer HSA-comptible plans will set up the savings account and pay interest on the money deposited into the account. Most plans offer 100% coinsurance after the deductible has been met, meaning most out of pocket expenses are fully covered at that point. For everyone. And a family deductible of $3500 with a 100% coinsurance is more significantly more attractive and less expensive than a per person deductible of $1500 with an 80/20 coinsurance!

Whether self-employed or not, the money deposited into the savings account is tax-exempt and the money withdrawn for medical purposes is likewise tax-exempt; and the interest is tax-deferred. That is the benefit of these types of plans. The other benefits are the use of a PPO network for PPO discounts, and the family deductible and 100% coverage following the deductible. And, of course, the lower premium!

It is always advantageous to look at a non-co-pay plan, which usually offers a lower premium than a plan offering co-pays. But a plan with a family deductible will ultimately cost less than the plan with the per person deductible. (Read our article, "Upset with High Premiums?" to better understand why non-co-pay plans are almost always better than plans which offer co-pays.)

The less you ask the carrier to pay for, of the "small stuff," the lower your premium will be. If you asked your car insurance plan to pay for tune-ups, flat tires and oil changes, chances are you wouldn't be able to afford the premium! Likewise, the more you ask your health insurance plan to pay of the "little things" the more they will charge for the privilege. The person who says, "I hardly ever go to the doctor" is wasting a lot of money on a co-pay plan – usually to the tune of more than $70 per month in higher premium!

Getting back to the potential savings in premium and out-of-pocket expenses of a plan with a family deductible and no 80/20 co-insurance...

Example:

Standard health plan, two adults, mid-40's, non-smokers, no negative medical history, with two children, standard $1000 deductible and $20 co-pays for doctors, etc:

Premium: $ 470 to $580 per month (avg = $525) x 12 months =         $  6,300

Worst case Scenario:

$1000 deductible x two (usual family maximum) =                                $  2,000

HSA, $3500 family deductible, same family size

Premium: $362 (average) x 12 =                                                             $ 4,344

Savings, in a worst case scenario =                                                  $ 8,696
 

MORE REALISTIC SCENARIO:

Male 45, smoker, okay medical history/Female, 41, non-smoker

HSA premium w/family $3500 deductible = $375 premium =            $ 4,500

So you decide: co-pay plan charging you for services you might not use, or a plan whereby you pay a minimum premium and take responsibility for those things that are necessary expenses, and ultimately cost you less over the course of a year? How many times in the last 10 years has any one family member met a deductible? The average person meets a deductible less than once in a ten year period. Less than 95% of the insured public will meet a $1500 or higher deductible in any given year. Think about it.

How much do you want to pay for coverage? How much are you willing to be responsible for the "little stuff"? Insurance is meant to protect you against the unexpected.... you should budget for the litte stuff and insure for the big stuff. You will save more money in the long run, even in a worst-case scenario - in fact, especially in a worst case scenario!