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HSAs vs. Co-Pay Plans for Health Insurance

Many people are reluctant to leave their high-priced health insurance illinois plan because it has a “low” co-pay. That raises a fair question: Just how much does it really cost to carry a policy with a “low” co-pay?

Let’s assume the co-pay is $20. Our happily insured family sends one family member to the Doctor this month. The cost? “Just $20″. That is what we will typically hear: “but the Dr. visit only cost me $20 out of my pocket.” Is this the truth?

A closer look reveals a hidden secret fact. The insured person forgets to include the amount of the premium they have to pay every month to maintain that coverage! After all, the total amount of money out of your pocket must include all of these payments. You have to count ALL of it! (Otherwise, you are cheating yourself when you are evaluating your coverage and costs.)

A typical family today may easily be paying $600 (or more) in monthly premiums for that policy. Let’s assume it is exactly $600. Wouldn’t it then be more correct to state that the total out of pocket expense for the month was $620? After all, you had to pay the $600 premium in order to have the “convenience” of a $20 co-pay.

What if that single visit to the doctor turned out to be the only medical expense incurred for the year? Now, how much did that visit to the doctor actually cost? The annual premium is $7,200. Add $20 for one doctor visit and your annual cost is $7,220. That means that your ONE doctor visit cost you $7,200 for the year.

This example simplifies too much. Let’s take a more realistic example. Given the same family and situation, how much would they pay for an HSA plan with a high deductible, but with no co-pays? The answer will vary from state to state and depends on a variety of factors such as age, insurability, etc. For illustrative purposes, let’s presume this family has opted to go with a $5,000 deductible HSA family plan with a monthly premium of $380.

The key is to compare the premiums on the co-plan with the HSA plan premiums. In this example, the difference is $220/month (600 minus 380 = $220). This is a much more accurate and realistic number. That’s because the true “cost” of carrying a $20 co-pay in this example is the difference between the high premiums on the co-pay plan and the low premiums on the HSA plan that has no co-pays (by law). In this example, it happens to be $220 a month, which means that the true net cost of carrying a $20 co-pay plan is $220/month, or $2,640. $2,640 more a year just to carry a co-pay plan.

The actual difference between the co-pay plan and the HSA plan will vary from case-to-case, but the principle remains the same. The insurance company is going to charge you more for the privilege of being able to pay “only” $20 when you visit the Doctor (or buy a prescription, etc.). Simply stated, the more risk you’re willing to assume at point-of-purchase, the lower the insurance company can make the premiums! The key is what YOU actually do with the money you save. This is where the HSA comes to the rescue, because “Uncle Sam” will actually pay you to save money in an HSA account! (Thus, here lies the beauty of tax-deductible contributions made to your HSA savings account.)

 

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