Consumer-directed health plans allow individuals and families
to have greater control over their health care, including when
and how they access care, what types of care they receive,
and how much they spend on health care services. The major
types of consumer-directed coverage are:
- Health savings accounts, usually coupled with high-deductible
health plans.
- Health reimbursement arrangements.
- Flexible
spending arrangements.
- Archer Medical Savings Accounts.
Health
Savings Accounts
A health savings account is a type of medical savings account
that allows you to save money to pay for current and future
medical expenses on a tax-free basis. In order to be eligible
for a health savings account, you must be covered by a high-deductible
plan, not have any other health insurance (including Medicare),
and not be claimed as a dependent on someone else's tax
return.
You can use this account to pay for
your qualified health expenses, including expenses that the
plan ordinarily doesn't cover, such as eyeglasses and
hearing aids. Expenses paid out of the HSA that are eligible expenses under your
high-deductible health plan will count toward the plan's deductible.
During
the year, you can make voluntary contributions to your health
savings account using before-tax dollars. In some cases, employers
may set up and help fund health savings accounts for their
employees. A health savings account earns interest. If you
have a balance in your health savings account at the end of
the year, it will "roll over," allowing
you to build up a cushion against future health expenses. A
health savings account allows you to accumulate funds and retain
them when you change plans or retire.
High-deductible Health Plans
High-deductible health plans that can be used with health
savings accounts are now being offered by many insurers. As
of 2007, individuals contributing to a health savings account
must be covered by a health plan with an annual deductible
of not less than $1,100 for self-only coverage and $2,200 for
family coverage. The deductible generally applies to all expenses,
including prescriptions and doctor office visits, but in some
cases, preventive care does not count toward meeting the deductible.
However, most plans will cover preventive services, such as
routine office visits, before you have met your deductible.
Under a high-deductible plan, out-of-pocket expenses in 2007
cannot exceed $5,500 for self-only coverage and $11,000 for
family coverage. These dollar amounts are adjusted annually
to account for inflation, and they include deductibles, copays,
and other amounts, but not premiums.
After the deductible has been met, some plans will have a
coinsurance of 10 to 15 percent of expenses but only up to
the out-of-pocket limit in the plan. After you meet the out-of-pocket
limit, the plan will pay 100 percent of expenses. Other plans
will pay 100 percent after the deductible has been met.
Some insurers
have negotiated discounted prices with participating physicians
and hospitals, resulting in substantial savings to consumers
who purchase high-deductible health plans. If you are considering
this type of coverage, be sure to inquire about discounted
prices.
Health Reimbursement Arrangements
Health reimbursement arrangements may be established by employers
to pay employees' medical expenses. A health reimbursement
arrangement must be set up by an employer on behalf of its
employees, and only the employer can contribute to it. The
employer decides how much money to put in a health reimbursement
arrangement, and the employee can withdraw funds from the account
to cover allowed expenses. Health reimbursement arrangements
often are established in conjunction with a high-deductible
health plan, but they can be paired with any type of health
plan or used as a stand-alone account.
Federal law allows employers to determine whether employees
can carry over all or a portion of unspent funds from year
to year. Also, employers can decide whether account balances
will be forfeited if an employee leaves the job or changes
health plans.
Flexible Spending Arrangements
Flexible spending arrangements are set up by employers to
allow employees to set aside pre-tax money to pay for qualified
medical expenses during the year. Only employers may set up
an account, and employers may or may not contribute to the
account. Also, there may be a limit on the amount that employers
and employees can contribute to a health flexible spending
arrangement.
Health flexible spending arrangements can
be offered in conjunction with any type of health insurance
plan, or they can be offered on a stand-alone basis. In the
past, health flexible spending arrangements were subject to
a use-it-or-lose-it rule. Now, employers may give employees
a 2-½ month grace period at the end of the plan year to
use up funds in the account. After that time, remaining funds
from the previous plan year are forfeited. If you have a flexible
health spending arrangement, you should try to anticipate your
health care expenses for the coming year to avoid losing any
money that you contribute and don't spend.
Archer Medical Savings Accounts
Archer Medical Savings Accounts are individual accounts that
may be set up by self-employed individuals and those who work
for small businesses (less than 50 employees). To set up an
Archer medical savings account, you must be covered by a high-deductible
health plan. Either the employee or the employer may contribute
to an Archer account, but both cannot contribute to the account
in the same year. Individuals control the use of funds in Archer
medical savings accounts and can withdraw funds for qualified
medical expenses. You can roll over funds from year to year,
and balances in Archer medical savings accounts are portable.
This means you can take them with you when you change jobs
or retire.
