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Finally.... and HSA discussions - John [entries|archive|friends|userinfo]
John

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Finally.... and HSA discussions [Mar. 6th, 2016|06:09 pm]
John
So, there's this idea that's in the ACA. There should be a tax on high-value health care plans. It never made sense to me - but I finally tracked down the reasoning.

It basically comes down to this: if you take your typical employee, and offer them a selection of health care plans, and you'll pay for the most expensive one - but give them the difference in cost if they pick any of the cheaper ones - the odds are high that they'll pick a plan that's below what's called the "Cadillac plan" limit.

So what? What's the big deal? The big deal is, if you pay $10,000 for an employee's health care benefits, it's totally tax free. It's a deduction to the corporation (or the partnership/sole-P), and it doesn't get counted as employee income. If you pay $5,000 in health care benefits, and give them $5,000 in cash, that's instead $5,000 in income, possibly subject to Social Security taxes, and so forth. So, there's a lot of revenue lost by people parking part of their pay in their health care plans instead. (In fact, this is a reason why *Democrats* negotiated a one-year delay on the Cadillac plan tax - a lot of unions had plans at that level or higher.)

There's also an idea that if people have more "skin in the game" - if they are affected more by the health care costs they rack up - they'll make more careful choices. If you can take X_New_Drug for a condition, or Y_Old_Off-Patent drug, you'll pick Y over X. And if you have a severe abdominal pain, starting in the lower side quadrant, radiating out toward your entire abdomen, and a high fever, you might decide to tough it out, rather than go to the ER and have an appendectomy.

Yeah, I was being a bit facetious there, obviously. The thing is, so far, all the studies I know of say that when there are higher imposed costs, there's lower quality of care and poorer outcomes. Economists say that, over time, people will make more rational economic decisions, in line with their desires, and there's some truth to that, but people don't have the medical training to make good health care decisions based upon cost.

There was a story going around the web of a person with a severe infection given a prescription for antibiotics and pain killer, and who, having the money for just one, chose the painkiller. I'm not sure if this was a fatality or not - and while a lot of educated folks might say something about the Darwin awards, remember that person might have needed to work to make the money to get the antibiotic - and the painkiller might have been what they needed to try to tough it through a work day.

Anyway. If you want to control costs, you need to control it at the medically trained level. If there's a higher copay, or just some hoops to jump through, for the newest, most expensive treatments, versus old treatments that work just as well, those can be good. But I don't agree that people shop for medical care like they shop for groceries, and pile up costs for no reason, or refuse to take adequate substitutes of lower cost.

Mind you: I'm not saying these aren't annoying. I have a friend with severe sleep apnea issues, and s/he was considering surgery, but was diverted first to a - 12 week? - CPAP class. Now, I can see this really easily from the insurance company's perspective. If some people never even go to the class, that's 0 cost. If the class costs $5k (a made up number!) and the surgery costs $25k (similarly made up...), and half the people who finish the class don't get the surgery, that's a massive savings - $20,000 saved from those who don't get the surgery, versus the extra $5,000 for those who got the surgery; that's $15,000 per person saved!

That said: from what my friend said of the apnea, I was pretty darn sure that a CPAP class wouldn't do a damn big of good, and I wished doctors could submit cases to skip the class. Done right, it saves the insurance company the class cost with minimal loss. But, alas, it's human nature to find and empathize with special cases; I wouldn't be surprised if the insurance actuaries found that there were too many special cases that might have been diverted from surgery.

Where was I? Right: Cadillac plans. Microsoft is well known for having very generous benefits, and their health care plan was likely to hit the limit. So they've changed tactics. They have an HMO which I believe I tried for a bit, and I've heard good things about. A well run HMO, if used by some subset of VIPs at Microsoft, can be inexpensive and have high satisfaction ratings. But I have some long-term investigations, and some prescriptions that I'd hate to have to fight for again....

So, I'm in one of the newest goodies, the belle of the Republican Ball for controlling health care costs, the high-deductible plan with a health savings account.

This is a great plan for me. I'm well-off, and even though there's a chance I'll max my out-of-pocket expenses this year, even if I do, if I contribute enough to my HSA, I can have a big start on the deductible for next year. Or, if I want to pay my own health care costs, I can let the money in the HSA grow - there are options to invest in mutual funds.

I can see why this is so beloved by the Republican Party. It's a great deal for people who want to park their money somewhere tax free, and let it accumulate with tax free earnings, and, as above, there's a widespread claim that it only makes sense that people would become savvy shoppers for health care if it's their own money being spent. But there's something I hadn't realized.

You don't need to use your HSA money. Ever.

You can max your HSA contribution, and if you can still cover all your health care expenses out of pocket, you get to keep the entire amount collecting earnings. Those of you who don't understand the power of compound interest might not realize how big a deal this can be. But money invested can double in value every 7-10 years, even if invested in index funds. (In fact, especially if invested in index funds - it's extremely rare that anyone can beat the indexes consistently.) So: a 30 year old can see that 3350 invested today turn into 30,000 or more before retirement. It's a nice bit of change, and it might happen quite a few years in a row.

I'm not sure this is a horrible thing; there are many things that the rich gain more advantage from than the poor. But it still annoys me, maybe a bit irrationally. I'd known that HSAs were a way to be of benefit to the well-to-do, but I hadn't realized how much of a benefit they were intended to be.

Anyway. Today, I had to prime my HSA with an up-front injection, and that's when I realized/learned about the possibilities. Well, it's nice to think about, though it's annoying that it's such a big part of the "Repeal!" crowds' plan for "replace!"

And, more importantly, I finally got the time and energy to do it. My heart monitoring is done for closing in on two weeks now, and I should be back to normal, but... but, I caught a cold. Life's funny that way, isn't it?
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Comments:
[User Picture]From: beaq
2016-03-07 08:05 am (UTC)
I never had an HSA that didn't evaporate into the administrative corporation's pocket at the end of the coverage year. Are they different now?
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[User Picture]From: johnpalmer
2016-03-08 12:58 am (UTC)
I think there used to be a different name for them, but now they're called FSAs: flexible spending accounts. (I know they must have had a different name because they sure as heck aren't *flexible*!)

FSAs are where you can set aside money to pay for medical expenses (and this used to include OTC drugs), tax free. You can now use it for child or dependent care, as well - I'm not sure if that's a recent addition or not. They were additionally entirely use-it-or-lose-it, and they may have had a small rollover amount at EOY. But they're a different animal.

The HSA is intended as a pure-D savings account. The basic idea would be "if people start saving in their early 20s, through compounding interest/returns, by the time they hit their 40s/50s, they might have a big pot of money to draw from for chronic or expensive acute, conditions. And if they don't have health expenses, they can use it for retirement, or leave it to a beneficiary."

This would work out well for folks who are even moderately well off, and generally healthy - even a few hundred dollars a year invested in mutual funds can grow to a big chunk of money over time. For the well-to-do, it's $3350 of tax sheltering, and you can withdraw any money used to pay medical expenses tax free - you can even reimburse yourself long after the expenses if you save your receipts. So every dollar paid for medical care can later be paid back from the account at a time of your choosing.

For all my cynicism about it, I do have to admit it seems like a decent part of a larger package to help people take care of medical expenses.
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