High Deductible Health Plan Push Is On

Last Updated Oct 24, 2011 9:48 AM EDT

Its open enrollment season again. This is a time when most employers roll out upcoming changes to their benefit plans and workers are required to make their choices. Employers are again stepping up their efforts to push their employees to take more responsibility for their own costs and health care choices.

This year there is an even greater effort to drive employees to choose high-deductible health insurance plans. In fact, some large employers such as General Electric, are planning to make high deductible health plans the only option for their employees next year.

Behind this push is the rising cost of health insurance. According to the Kaiser Family Foundation Health Benefits Survey the cost of health insurance rose 9 percent in 2010, to an average of about $15,073 per year for a family plan.

As its name implies, high deductible health insurance plans come with high deductibles and are primarily designed to provide affordable coverage for major health and medical expenses. These plans, which come with significantly lower premiums, are ideal for younger and healthy workers with no significant conditions that require ongoing medical care. But when these plans are paired with a Health Savings Account, or HSA, where tax-advantaged savings can be deposited, they can be a good option for more people. In fact, more employers are offering to make contributions into an HSA as an incentive to get their employees to enroll into the high deductible plans. Most employers and employees can lower their premiums by 40% with a high deductible HSA-qualified health insurance plan compared to a conventional co-pay plan.

When you're covered under a high deductible health insurance plan, you'll have to pay out-of-pocket costs for routine doctor's office visits or trips to the emergency room until what you have paid equals the amount of the deductible. To help you prepare financially to pay these out of pocket costs, you should open a Health Savings Account, or HSA, into which you and your employer can make tax free contributions to cover the amount of the deductible.

The HSA contribution limit for 2012 is $3,100 for singles and $6,250 for a family of two or more. Folks age 55 and older can contribute an additional $1,000 over these limits.

Money in an HSA can be invested in funds similar to an IRA. The investment earnings will be tax-free when withdrawn to pay for qualifying medical expenses, such as deductibles and co-payments. If you don't use the money in the HSA for a given year, not a problem as it is not forfeited. The money can remain in your HSA and accumulate over the years to build a fund you can use to pay for your future health care costs, even for such costs in retirement.

While a high deductible health plan can lower your overall costs for health insurance while covering you for unexpected and large medical costs, be careful to make sure you have a plan to pay the initial out of pocket costs. You'll need to first come up with the cash to pay out-of-pocket costs, either from your HSA or from your own savings, to satisfy the deductible before your health insurance coverage kicks in.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.