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An Answer to Sky High Health Insurance Premiums
Actuaries at the Centers for Medicare and Medicaid Services calculate that national health expenditures grew from about 7.0 percent of GDP in 1970 to 15.3 percent in 2003. And, they forecast that medical expenditures will reach 20 percent of GDP by 2015. It's no longer possible for business, our government, or individuals to ignore these rising costs.
Clearly, something must be done. We baby boomers can remember a time when we never gave health insurance a thought. It just automatically came with employment as a free perk. It's not that employers were all that much more generous way back then. Just like today, business was driven by profit. But, businesses needed workers, and workers were a scarce commodity at the end of World War II. Health insurance was a cheap benefit. Once one employer started throwing it in they all had to just to stay competitive.
Since that time the cost of health care has skyrocketed. There are two chief reasons for this. First, medical science has advanced greatly over the past 50 years. At the end of World War II there was no open heart surgery. And, only a few decades earlier even diabetes was a death sentence. Countless lives have been saved and the quality of life, for virtually everyone, has been greatly elevated by the enormous advances made in medical science over the past five decades. But, these wonderful advances have come at a cost.
The second reason that health expenditures are nearing 20 percent of the GDP is simply a lack of diligence. Because we have come to view medical expense as “free” we've failed to manage the cost of these services adequately. Collectively, we've been careless consumers. Our benefits packages and appetites have all contributed to our failure to keep an eye on medical costs. The government has complicated the matter by stepping in with legislation that, in effect, guarantees healthcare for all. And, first class healthcare with the latest technology at that!
So where does this all end? Do we just keep spending until medical expenses consume 25% or even 30% of GDP? That may suit the medical industry. But, it spells financial disaster for the nation. Congress took a major step in the right direction in 2004 when it passed legislation which created a special class of tax deferred savings account - the Health Savings Account or HSA. The goal of this legislation is to put consumers back in control of medical expenses while providing insurance products that would cover high unexpected bills. Health Savings Accounts can only be set up in conjunction with the purchase of a qualified High Deductible Health Plan (HDHP). The HSA HDHP combination is a good way to go for individual and family plan purchasers, especially if you're overall health is relatively good.
The idea is to purchase a less expensive health insurance plan and then deposit the premium difference in a savings account. The higher deductible insurance plan creates financial incentive to control cost while providing financial relief should a major illness or injury occur. By depositing the premium difference in a Health Savings Account the consumer builds equity which can be used for healthcare costs which aren't covered under the medical insurance plan.
The beauty of the HSA is that contributions are tax deferred when you put money in, and tax exempt if you use the money for qualified purposes. I repeat: When you use the money you save for qualified medical purposes you never have to pay taxes on the money or on any earnings the money may have accumulated - this is huge! A number of banks have web sites to explain the intricacies of setting up a Health Savings Account. And, your insurance agent can help you select a qualified High Deductible Health Plan.
Author: Vern Bell, MBA
Chartered Benefits Consultant
About the Author: Vern Bell, MBA, CBC is an independent consultant and creator of www.selfserveinsurance.net.