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New Trends in Health Insurance

July 2007
New Trends in Health Insurance

If you pay for your own health insurance, you are probably aware that the costs of insurance are continually rising. On average, the current medical inflation trend is at around 8-10 percent per year. When we combine the medical inflation with an aging population, advances in healthcare and bad claims experience of insurance companies, the result is health insurance renewals of 20-30 percent per year.

Of course, the cost of healthcare has been rising continually for the last 40 years. This is not something new. What is alarming is that if current trends continue, our health insurance rates will be double within 5-6 years! When you are paying as much as $700/mo. for insurance for a family, the thought of having to pay $1400 is a little scary. And to go completely without health insurance is not a good idea.

Most people can afford to take care of the doctor visits from their pockets, but if you had to be admitted in a hospital for an accident or major illness, you could easily run your expenses into tens of thousands of dollars. If your accident or illness is serious, it could also keep you from qualifying for another individual health plan. Also, keep in mind the rates that insurance companies pay to providers (hospitals and doctors) is significantly lower than what a consumer would pay based on their retail rates.

So What Can You Do? There are several options you need to consider to keep your health insurance costs manageable.

First, consider higher deductible options. Most health plans today will give you office visits and prescriptions with just a co-pay. Since that is the benefit most of use more regularly, having a higher deductible for hospitalization is not a bad idea. For example: A family with a $500 deductible might pay $981/mo. A similar plan with office visits and Rx benefits with a $3000 deductible would run around $464/mo. If you save the $517/mo. in the premium differences, you could save $6204/yr. to help you pay for your deductible, should you need it in the future. By having a lower deductible, you are paying for something whether you use it or not. By having a higher deductible, you will pay the deductible, only when and if you need it.

Second, shop around for better rates. All health insurance companies go through competitive cycles due to their claims experience. If an insurance company takes on too much risk (meaning, too many of the people they are insuring with serious health concerns are utilizing their benefits excessively), they will have to raise their rates more frequently and excessively compared to the companies with better claims experience.

This is kind of ironic, because what happens is that the healthy people switch to other insurance companies, and the insurance company is stuck with the unhealthy people who have no choice and have to wait until they can become profitable again. It's like having a business with rising expenses. What do you do? You can either increase your prices or hope for more volume. More volume at a lower price than you can afford will put you under pretty quickly. So, shop around for health insurance rates if you are healthy, either once a year or when needed.���Warning! Be sure to choose a company that is reputable with strong ratings. If your health turns bad for whatever reasons, you may be stuck with that company for a long time!

Are Health Savings Accounts (HSAs) a Good Option?

Health savings accounts are for people with qualified high deductible health plans. In an HSA, you have to choose a high deductible health plan that does not include general office visit co-pays and prescription co-pays. Most of them will include a routine physical once a year with just a co-pay.���So, your deductible can be applied to all your day-to-day expenses. In addition, you can establish a savings account on the side called a Health Savings Account or HSA. The money you contribute to this account is tax deductible and it continues to stay in that account until you are ready to spend it on qualified healthcare expenses. When spending your HSA dollars for healthcare, you get to spend pre-tax dollars rather than post-tax dollars. And by having a high deductible plan, your rates are generally lower than a lower deductible plan. Sounds like a great idea, doesn't it?

Here is the challenge. Suppose you have a $5000 deductible HSA health plan for a family in the age group of 35-39. Your monthly rates would be around $349/mo. with a specific insurance company. In the HSA plan, you forego the office visits, co-pays and Rx benefits co-pays for the savings account option. And you can contribute up to $2850/yr. for individual and $5650/yr. for family for 2007 in the tax deductible HSA account. With the same insurance company with a $5000 deductible with office visit co-pays and Rx co-pays, rates for the same family is $359/mo. For a $10/mo. savings, you have to give up your day-to-day benefits so you can put money into a tax-deductible savings account.���This is why HSAs are not catching on as they had predicted. The pricing needs to have a significant gap before more individuals will opt for them.

Don't take your health insurance benefits lightly! If you are working for an employer, who is paying for some or all of your health insurance, be aware that they are giving you a very expensive intangible benefit. A recent article showed that General Motors spends on average more for healthcare for their employees than they do on steel!

By Rajesh Jyotishi

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