Taking control of health care costs

by Roy Smith

A major health-care crisis is brewing in the United States. Health insurance premiums for American workers are rising three times faster than wages, and health costs eat up a quarter of the earnings for more than 14 million Americans, according to a recent report from the nonprofit Families USA.

Additionally, one out of every three Americans under 65 years of age went without health insurance for some period of time in 2003-2004. Without adequate health insurance coverage, families could be setting themselves up for financial disaster.

Why have health insurance costs skyrocketed so much in recent years, to the point that they are becoming out-of-reach for many American families? Are health insurance companies realizing tremendous profits at the expense of the consumers?

According to government statistics, 90% of the health insurance premium collected pays for medical services, 9.6% pays for claims and consumer services, and less than half a percent goes to insurance income or profit.

Clearly then, the rapid rise in costs of medical services is to blame. The question then becomes, why have the costs of medical services -- doctor visits, hospital care, outpatient services, prescription drugs, and other items covered by health plans -- increased so much in recent years?

Many believe that the costs of medical services continue to increase simply because of the way these services get paid. Traditionally, these services are paid for by employees’ health insurance plans, which feature low deductibles and doctor office co-pays. People have little reason to question the cost of services because they knows the majority of the expense is being paid for by insurance providers.

The only figures consumers are personally responsible for are the deductibles and co-payments. Beyond that, they show little interest in the cost of services. There are no market forces to drive down prices. Consumers reap limited benefits to shop around for lower priced services because their out-of-pocket costs will remain about the same regardless of the price.

In an effort to introduce market forces into the health care industry, consumer-driven health plans are now being introduced. Among the most popular plans are plans which accompany Health Savings Accounts or HSAs.

These plans feature a high deductible (minimum of $1,100 for individual or $2,200 for family) and no doctor office co-pays or prescription drug co-pays. The initial cost of medical services is paid for by the consumer with the insurance company usually paying for 100% of the costs after the deductible is reached.

Because consumers are responsible for payments until the higher deductible is reached, they are more likely to take a personal interest in the cost of their care.

For instance, when I recently took my son in for some foot surgery, I called several podiatrists to ask about routine costs. If I had an insurance plan with a $250 deductible, I would not have cared because I would have known that the cost of the procedure would cost me $250. But because my family deductible is $5,100 I shopped around. I was amazed to find a range of $400 to $750. Market forces became a factor in my health care decision. I could choose to pay anywhere from $400 to $750.

How are consumers rewarded by enrolling in HSA-qualified health plans? First, insurance premiums are often less than half of those of traditional plans. Second, the government allows policyholders to place pre-taxed money into a Health Savings Account to help pay for qualified medical expenses, including dental and vision.

Contribution limits for 2005 are $2,650 for individuals and $5,250 for families or their deductible, whichever is less. Monies can be invested in stock, bonds, etc. Qualified withdrawals, including growth in the account, are never taxed.

With HSAs, you achieve the three major goals of tax planning: tax-deductible contributions, tax-deferred growth and tax-free withdrawals. Many account holders are looking at these as a great way to supplement their retirement as well.

(Roy Smith is a fully‑licensed insurance broker representing more than 30 companies in 48 states. He specializes in the areas of life, disability and health insurance and retirement planning. He is one of the leading producers of Health Savings Account insurance plans in the southeast. His company, Chiropractic Insurance Services, is one of the industry’s largest providers of HSA qualified insurance plans. For more information on HSAs, or to apply online, visit www.ChiropracticInsuranceServices.com, or call 800-582-4989)