How Will the Changing Health Insurance Landscape Impact You?
With this month’s rollout of the Affordable Care Act’s insurance marketplace, health insurance has been in the news in recent weeks. And the preponderance of articles has increased people’s anxiety about the introduction of universal health insurance, or “Obamacare.” The first fact to establish–one missing from many of these news stories–is that if you have employer-provided health insurance that you are happy with, there is no need to make a change.
However, it’s important to recognize that as major companies continue to eliminate health insurance for retirees, you may one day find yourself in the marketplace. Moreover, the exchanges could be an alternative if you are self-employed or if you retire before age 65 when you become eligible for Medicare. And, notably, this may be the most important fact to remember about Obamacare: nobody can be denied coverage in the Affordable Care Act’s marketplace due to pre-existing conditions.
Interestingly, in Part-Timers Losing Health Insurance May Want To Thank Their Companies, Rick Newman says that part-time employees who are not eligible for company health insurance may get better coverage in the Obamacare marketplace. He estimates that a two-parent family with two children and a $50,000 income could get a $10,000 plan for $3,365, with subsidies covering 66% of the cost. That sounds reasonable, but for every person who gets a better deal there has to be someone paying more, right? And that’s true–higher income workers who may lose their employer-provided coverage and have to buy insurance through Obamacare could be looking at a premium increase because the valuable subsidies get phased out. This year, an individual with an income of $45,960, or a family of four earning $94,200 would not qualify for an insurance subsidy.
Newman points out that the Kaiser Family Foundation offers a helpful calculator that factors your income and other details to give you an idea of how much insurance could cost you under the new program. But, as long as your employer offers health insurance to you, you are likely best served to evaluate that option fully. Of course, it’s too early to tell how your current premiums might be affected over the long term.
An increasing number of employees will find themselves exploring an option that was created in 2003: a Health Savings Account (HSA). This is a tax-advantaged savings vehicle created as part of the Medicare Prescription Drug and Modernization Act of 2003 that allows individuals with High-deductible Health plans (HDHPs) to save money for health-care expenses. The annual deductible for an HDHP in 2013 can’t be less than $1,250 for self-only coverage and $2,500 for family coverage. Also, 2013’s annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for self-only coverage can’t exceed $6,250 or $12,500 for family coverage.)
The accompanying HSA offers triple tax benefits. The money you contribute to an HSA is tax deductible, your contributions grow tax-deferred, and distributions spent on health care are tax-fee. Unlike your flexible spending accounts, your HSA money rolls over year to year, creating a stash of tax-free income in retirement. That’s pretty powerful, but there’s a catch. To have an HSA, you must have the aforementioned HDHP. So the question becomes: How much can I save and how much will I need to pay out of pocket for that privilege?
For 2013, the annual HSA contribution limit for an individual with self-only coverage is $3,250, up from $3,100 in 2012. The annual contribution limit for an individual with family coverage is $6,450, an increase of $200 over the 2012 limit.
As you evaluate this option, consider that HDHPs with HSAs have been part of the benefits landscape for more than a decade. According to the United Benefit Advisors’ 2012 survey of more than 17,000 health plans, nearly 15% of employers now offer HDHPs with HSAs. And a new study from the Employee Benefits Research Institute (EBRI), “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan with a Health Savings Account: A Five-Year Study,” found that HSAs can effectively manage rising health care costs.
Studying data gleaned from a large midwest employer that adopted an HDHP with an HSA for all employees in place of its traditional health care offering, EBRI found that an HSA linked with an HDHP reduced health care spending initially and over a four-year period. In fact, the plan’s total health care spending fell by 25% in the first year, or $527 per person. The savings continued over the next three years, albeit at a slower pace.
More specifically, EBRI reported that each category of health care spending experienced statistically significant reductions in the first year of the HSA plan, with the exception of spending on hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36% and 32%, respectively). However, only reductions in pharmacy and laboratory spending were significantly lower throughout the entire four years with an HSA.
If you are a business owner, the HSA option may be worth adding. And, if your company offers this option, it may be worth considering. If you have any questions about the HSA option, consult your advisor.