A Riddle Without a Clear Answer

by | Aug 10, 2007 | Cash Flow, Weekly Column

riddle.jpgHere’s a riddle for you. What is something that you can’t afford to have, you can’t afford to be without, and you hope you never have to use?

The answer, of course, is “health insurance.” Actually, the whole topic of health insurance is a riddle, so complex and tangled that no one seems to have an answer for it. The problem of how to pay for health care has so many facets and so many causes that we don’t even know where to start talking about it, much less trying to solve it.

Out of this tangled riddle, one thing is increasingly clear. It’s more important than it has ever been for each of us to be active consumers of health care services and health insurance. The concept of low-premium, low-deductible health insurance plans routinely provided by employers belongs to the “good old days.” It’s becoming harder and harder for businesses, especially small companies, to find health plans that they and their employees can afford.

As a result, it’s increasingly up to individuals to find their own health insurance. One option—sometimes the only realistic option—is a plan that has a high deductible. Some of these plans may also pay part of the cost of doctor visits and prescriptions, though others do not.

Another choice to explore is a Health Savings Account. This is a combination of a high-deductible insurance plan and a personal savings account that is similar to an IRA. You pay the insurance premium, and you make regular contributions to the Health Savings Account. Then you can withdraw money from the account as you need it for medical expenses.

My research has found there isn’t much difference in premium costs between a Health Savings Account plan and a simple high-deductible health plan. So why not just get the health insurance and set up your own savings account?

The main reason is that money you put into a Health Savings Account is tax-free. When an HSA plan is offered through an employer, the employee contributions are taken out before payroll taxes are computed. For individual HSA plans, you get a tax deduction for the amounts you contribute, up to the amount of the insurance plan’s deductible.

Money you withdraw from the HSA is not taxed, either, as long as you use it to pay qualified medical expenses. These include expenses that normally are not covered by health insurance, such as dental and eye care, counseling, non-prescription medications, alternative treatments, preventive care, and medical aids such as wheelchairs.

If you don’t use all the funds in the account, they remain there as savings toward your retirement. Generally, you don’t have much control over how the funds are invested. You do pay taxes on any amounts you withdraw for non-medical expenses. In addition, there is a 10 percent tax penalty on any non-medical withdrawals you make before the age of 65.

A Health Savings Account plan may be one of the better options currently available for individual health healthsavings.jpginsurance. Before you go this route, however, it’s important to do some research. This means far more than getting one quote from one insurance company. Ask questions. Compare plans. Make phone calls to several companies. For the computer literate, the internet is a great way to find out more.

The riddle of affordable health care and health insurance is one that has no clear right answers. For now, we have to settle for guesses that are close enough. It’s up to each of us to make the most educated guesses we can in order to find plans we can live with.

You Can view the Video of this blog here: https://www.youtube.com/watch?v=ZplZkyUoUu4

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