A Health Savings Account - HSA - is a new financial strategy that
allows an insured person to save money in a tax-free account that
can be used to pay for future health costs. It was designed to keep
health care premiums down by passing some of the risk of a plan,
and therefore some of the costs, to the consumer.
An HSA is not an insurance plan. Rather, it's a savings account
that's attached to a traditional insurance plan. One without copays
or prescription benefits. Most of the time an HSA and the insurance
plan can be set up from one source - the insurer will set up the
savings account for the client at the same time they write the insurance
policy. When someone says "HSA" they usually mean the package
that is the insurance plan and the savings account.
Back to the 80/20 plans
An HSA is designed around a traditional 80/20 plan. Those were becoming
scarce in the 1990s as health insurance companies pushed PPOs, ostensibly
because they were a superior plan that encouraged wellness, but in
truth it was because PPOs had a higher profit margin for them.
An 80/20 (or 70/30, 60/40, etc.) is much simpler to understand than
a PPO or HMO. The consumer has a deductible of a certain amount
- we'll say $1,000 per year for our example - and the individual
pays all costs up to that deductible out of his or her wallet. Once
that deductible is met, the insurance company pays 80%, and the individual
pays 20% until a cap is met. For our example, we'll say $3,000. After
that cap is met, the insurance company will pay 100% of costs.
Why Get an HSA?
Now that we understand how an 80/20 plan works, we can talk about
what makes an HSA so great.
An HSA is a savings account that can be piggybacked onto that 80/20
plan. You are free to deposit up to the amount of your deductible
into the account every year. If you have a $1,000 deductible, you
can put up to $1,000 into the account, but you don't have to. If
you can only afford to put $100 into it, that's fine. The maximum
amount you can put in, regardless of your deductible size, is $2,600
every year.
What can you use the money in that account to pay for? Quite a lot,
actually. Anything that qualifies as a health expense is acceptable,
even if it's not an expense that would normally be covered under
a plan, or contribute towards your deductible. What if you need to
go to the dentist, but you didn't have a dental plan? How about if
you've found that acupuncture is the best treatment for that pain
in your wrist? No problem, those expenses can be paid for with money
from your HSA. That means that your teeth cleanings, while not being
free as they might be under a very expensive dental plan, are paid
for with tax free money. For a lot of people that represents about
a 20% savings. Also, all of those regular medical expenses that you
need to cover until you hit your deductible can be paid for out of
that account, as can those 20%'s you have to pay until you reach
your OOP.
There's also a nice tax benefit: all money that you save in this
account goes in tax free. So, when you are doing your taxes and you
figure out that you grossed $22,000 in income, but put $1,000 of
that money into your HSA, your adjusted taxable income becomes $21,000.
The obvious question is what happens if you don't use the money
in that account? Where does it go? What can you do with it? It
stays in the account and builds up over time as you add to it. If
you're so inclined, you can invest that money and grow the account
even more. A lot of people may find that investing is more work or
trouble than the potential risk is worth. The worst you end
up with is a tax-free option to tuck your money away until you need
it.
As the years go by, that money can be used as collateral on a loan,
or you can withdraw it with a tax penalty similar to that of an IRA.
Basically, if you eventually use the money for something other than
health expenses, you will have to pay taxes on it. Unfortunately,
it's not a tax-free way for you to save up for the 1962 Olympic White
Fender Jazzmaster you've always wanted. That would be too good.
What are the Drawbacks?
Nothing is perfect, especially in the world of health insurance. Here
are some things to be aware of if you explore this route:
You will have to pay, and pay more, when you got to
the doctor or get a prescription. Because they're based on the
80/20 plan, there are no copays when you go to the doctor – you
pay the full amount per visit. However, almost all young
people will win under this arrangement when these costs are stretched
over 5-10 years, even with a major loss one year.
Even though you'll have to pay at the doctor's, you will pay
less than someone who has no health insurance. Remember, you
have to have an 80/20 plan before you get an HSA, which means you're
eligible to pay rate negotiated by the health insurance company. For
example, a person with no health insurance might have to pay $227
for a doctor's visit. A person with insurance will pay
the rate the health insurance company has negotiated, even if
they haven't met the deductible. That might mean they pay $185
for the same visit.
Don't forget the monthly maintenance fee. Since HSAs are
a bank account, there will likely be some bank fees to pay. They
might be as little as $3 a month, but that can add up.
HSAs will help, MAYBE, 5% of the US population. There is still
a major crisis, and this key component of the "ownership society" is
a benefit that is accessible to folks who can already afford
some form of health insurance.
Form Your Own Little Insurance Company
Look at it another way: you can either give your money to an insurance
company so they can provide you with services that you probably won't
use, or you can pay a lower premium each month, put that savings
in your own account and act as your own insurance company for the
little issues, with the assurance of knowing that the big stuff -
should it arise - is covered. If you think about how little the average
healthy person goes to the doctor in a given year, the false economy
of a plan rich with benefits quickly becomes apparent.
The HSAer's motto:
Pay less now with the understanding that I may have to pay a little
more if I get sick.
Health
Alliance right prescription for uninsured musicians Nearly
500 musicians have signed up for care this year, provided by Austin's
Health Alliance for Austin Musicians Austin American Statesman, March 13, 2006
Musicians who
juggle jobs say latest cuts are too great Shreveport Symphony musicians struggle with paycuts and reductions in health
insurance coverage Shreveport Times, February 14, 2006
Coverage and Access
NPR's Ed Gordon interviews David Nathan, chair of the R&B Foundation,
about the lack of health insurance coverage among many musicians. According
to Nathan, many people assume that recording and performing artists "have
some huge amount of money that they generate, but that's just not the case.
NPR's News and Notes with Ed Gordon January
20, 2006
Soundman Versus Flesh-Eating Bacteria. His next challenge: a six-figure
medical bill Chicago musicians organize benefits to help soundman Gary Schepers Chicago Reader, January 6, 2006
Band Aid: Musicians Taking Care of their Own Chicago musicians and labels organize benefits to help soundman Gary Schepers Chicago Tribune, January 20, 2006
Most Temp, Part-Time Workers Lack Job-Linked Health Insurance
Commonwealth Fund study shows that only 21 percent of America's 34 million
part-time workers have health insurance from their job. Forbes, December 1, 2005
A New Pension for Struggling Artists Though it's about visual artists, an interesting article about artists pooling
their resources to create long-term security.
by Julie Salamon New
York Times, July 20, 2004
Band Aid for an Ailing Musician Almost 90 percent of the musicians surveyed
had played a benefit for another musician, though even the most successful
benefit seldom makes more than a symbolic dent in typically huge
health care debts.
By Richard Harrington Washington Post, April 9, 2004
Health Insurance Crisis Lingers for Biz The number of uninsured musicians remains high
By Chris Morris Billboard, March 13, 2004
Songs in the Key of Major Medical
By Peter Margasak Chicago Reader, November 28, 2003
Chic drummer Tony Thompson dies Thompson, who was also one of the world's most famous session musicians,
died of renal cancer. A fund was set up to help Thompson with medical bills
last week, as the drummer had no medical insurance. NME, November
14, 2003
Health Care for Recording Artists? In 2003, AFTRA approved an agreement with BMG,
EMI Music, Sony Music Entertainment, Universal Music Group, and Warner
Music Group. The agreement
would make available health care insurance to all union-affiliated performing
artists under exclusive contract to a recording label, for the duration
of their contracts.
By Barry Willis Stereophile, October 6, 2003
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Fractured
Atlas is a nonprofit service organization for artists and
creators. One of the benefits they offer their members is access
to group health insurance. Visit the website and select your
state from the menu to see the state-specific insurance options.
Membership in the organization is $75 annual for an individual, but
there are also affordable group rates starting at $150.
AHIRC:
The Artists’ Health Insurance Resource Center is an
online database created by the Actors’ Fund with a grant from
the National Endowment for the Arts. Data is organized by state
and includes information about resources in each state for artists,
and lists of insurers of all kinds. Access to this data is
free.
Health
Alliance for Austin Musicians If you are an uninsured,
professional musician in the Austin, TX area, you may be eligible
for low-cost primary health care services, basic dental care and
mental health counseling provided by HAAM.
SIMS Foundation is
a non-profit organization that provides access to low-cost mental
health services for Austin, TX musicians and their immediate families.
Texas Music Office is a state-funded business promotion and information clearinghouse for the musicians of Texas. The insurance page provides a detailed list of health insurance options for residents of Texas.
A
Consumer Guide for Getting and Keeping Health Insurance Created
by the Georgetown University Health Policy Institute, this website
provides legal information about your rights as a health insurance
consumer for each state. Updated regularly.
eHealthinsurance.com A
for-profit broker that consolidates information about plans and premiums
on their website.
