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Can HSAs and Consumer-Directed Health Plans Improve Your Health?

This post continues my discussion of how consumer-directed health plans (CDHP) and health savings accounts (HSAs) can improve your retirement security. You'll want to review my previous two posts, which explain how HSAs work and examine HSA strategies to better understand the thoughts in this post.

According to a recent survey from worldwide HR firm Mercer, more and more employers are adopting these plans for their employees. But why? The theory is that you'll be encouraged to take better care of yourself and become a more informed medical consumer if you have some money at stake. With these plans, you're paying every dollar of your medical costs, up to the deductible. And if you don't incur high medical expenses, the amounts in your HSA can remain invested for future expenses.

Are these plans working? Yes, according to Susan Connolly, a partner in Mercer's Boston office. "Programs targeted at improving employee health -- now the rule rather than the exception in employer benefit programs -- are having a positive impact," she said in a recent statement.

"Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room," said Connolly. "And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget."

According to Mercer, CDHPs are significantly less expensive than traditional PPOs or HMOs -- by about 15%, on average.

I anticipate that more employers will adopt these plans in the future as a way to help contain ever-increasing health care costs. "Employers know that a healthier workforce is more productive in the long term," said Sunit Patel, senior vice president of Fidelity's Benefits Consulting business, in a recent press release about wellness incentive contributions. "Wellness programs in the past have typically had modest impact because of low participation rates, but our study indicated that incentives are starting to make a real difference in employee interest and engagement."

I've participated in an CDHP/HSA plan for three years now, and I can tell you that they work as planned. I've become a much better consumer of my medical care, asking the doctor how much alternative treatments cost and looking for ways to reduce my medical costs. I've contributed the maximum allowed to my HSA, and I've also resisted the temptation to use the HSA contributions in the current year toward costs that are lower than the deductible. I'm letting these contributions remain invested until my later years.

There are a few more powerful reasons to actively participate in a CDHP and HSA plans. The evidence is accumulating that you'll be healthier, spend less money on medical bills, enjoy life, and possibly live longer. It doesn't get much better than that.

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