Overview on USA Healthcare Insurance - Consumer-directed Health Plans

Consumer-directed Health Plans

Consumer-directed health plans give greater freedom and access to individuals and their families to have greater control over their healthcare aspects, including when and how the medical facilities can be accessed, what types of healthcare products and services can be availed by such individuals and regarding the expenditure on healthcare services. The main types of Consumer-directed Coverage are as follows:

• Health savings accounts, usually coupled with high deductible health plans.
• Health reimbursement arrangements.
• Flexible spending arrangements.
• Archer Medical Savings Accounts

a) Health Savings Accounts

A Health Savings Account allows an individual to save money to pay for the medical expenses – in present and future on a tax-free basis. In order to be eligible for a Health Savings Account, an individual must be covered by a high-deductible plan, not possess any other health insurance (including Medicare), and moreover, should not have claimed as a dependent on someone else’s tax return. The concerned individual can use this account to pay for his/her qualified health expenses, including the expenses that the plan ordinarily doesn’t provide the coverage viz. eyeglasses and hearing aids. Expenses paid out of the HSA that are eligible expenses under the individual’s high-deductible health plan which ultimately count toward the plan’s deductible. During a year, an individual can make voluntary contributions to his/her health savings account using before-tax dollars. In certain cases, however, employers may set up and provide assistance for fund health savings accounts pertaining to their employees. A health savings account earns interest. If an individual possesses a balance in his/her Health Savings Account at the end of the year, it will “roll over,” allowing the individual to build up a cushion against future health expenses. A health savings account allows an individual to accumulate funds and retain them when he/she decides to alter or switch to other plans or retire.

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High-deductible Health Plans

High-deductible Health Plans accompanied with Health Savings Accounts are now being offered by many Insurance companies across USA. The deductible generally applies to all relevant medical/healthcare expenses incurred as part of the treatment, including medical prescriptions and visits to clinics or hospitals. However, in certain cases, preventive medical care expenses do not count toward meeting the deductible. However, most plans will cover preventive services, such as routine clinic or hospital visits including consultations, before meeting his/her deductibles.

These dollar amounts are adjusted annually to account for inflation which includes deductibles, co-pays and other amounts, but does not incorporate the premiums. After the deductibles have been met, some health insurance plans have a co-insurance of 10 to 15 percent of expenses, but only up to the Out-of-Pocket limit in the plan. After the individual fulfils the out-of-pocket limits, the plan will pay 100 percent of the incurred medical expenses. Other health plans will pay 100 percent after the deductible has been met. Some insurers have negotiated discounted prices with participating physicians, hospitals and other healthcare providers, thereby, resulting in substantial savings to the consumers or policyholders who purchase high-deductible health insurance plans. If an individual is considering such type of coverage, it becomes imperative to inquire about the discounted prices.

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b) Health Reimbursement Arrangements

Health Reimbursement Arrangements may be established or set-up by the employers to pay for their employees’ medical or healthcare expenses. A health reimbursement arrangement must be set up by an employer on behalf of its employees. Under such a scheme, only the employer can contribute to it. The employer is at liberty to decide as to how much amount should be contributed in a health reimbursement arrangement. Under this scheme, the employee is entitled to withdraw funds from the account to pay for the medical expenses covered under this scheme. Health reimbursement arrangements often are established in conjunction with a High Deductible Health Plan, but they can be paired with any type of health plans or used as a stand-alone account. Federal law allows employers to determine whether employees can carry over the entire or a portion of the un-spent funds from year to year. Again the decision pertaining to account balances to be forfeited incase if an employee resigns his/her job or changes health plans, is left for the concerned employers to take a suitable decision.

c) Flexible Spending Arrangements

Flexible Spending Arrangements are set up by the employers to allow their employees to set aside pre-taxation amount to pay for the eligible and relevant medical expenses incurred during the year. Only employers may set up such an account and thereafter the employers may or may not contribute to the account. There may be a upper cap-limit on the amount that the employers and employees can contribute towards the Flexible Spending Arrangement. Health Flexible Spending Arrangements can be offered in conjunction with any other health insurance plan or on a stand-alone basis. In the past, Flexible Spending Arrangements were subject to a use-it-or-lose-it rule. Nowadays, the concerned employers may grant their employees a 2-1/2 month grace period at the end of the plan year to use up the balance funds in their respective accounts. After that period, the remaining funds from the previous plan year are forfeited. If an individual possesses a Flexible Spending Arrangement, it is advisable that he/she should try to anticipate his/her healthcare expenses likely to be incurred for the forthcoming year so as to avoid losing the funds contributed by the individual and remains unspent in the bargain.

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d) Archer Medical Savings Accounts

Archer Medical Savings Accounts are individual accounts that may be set up by self-employed individuals as well as those who work for small businesses (i.e. less than 50 employees). To set up an Archer Medical Savings Account, the individual must be covered by a high-deductible health plan. Either the employee or the employer may contribute to an Archer account, but both cannot contribute to such an account in the same year. Individuals control the use of funds in Archer Medical Savings Accounts and can withdraw funds for eligible and relevant medical expenses incurred as applicable under this scheme. An individual can roll over funds from year to year and balances in Archer Medical Savings Accounts are portable in nature. In other words, an individual can take them with him/her when he/she changes the job or retires.