Thursday, January 24, 2008

Pardon My Ranting: new "insurance"

Laura's employer just ditched their traditional insurance coverage and picked up a Health Savings Plan. This is a high-deductible insurance plan, coupled with a tax-exempt Health Savings Account that can only be used to pay for medical expenses. You deposit money into your HSA with every paycheck, and you get a special debit card that lets you spend it on qualifying medical expenses. These HSPs are odd creatures, made no less odd by the fact that nobody, even the insurance companies, really understand them. I had a series of questions about the plan, and I received a few non-answers, and even a few contradictory answers, about the plan and what it covers and how it works.

Part of the problem is that the front-line question-answerer is a salesman. He can tell you how great, how absolutely freaking wonderful the plan is, but he can't answer actual questions about the plan. He'll gladly tell us that "a particularly appealing aspect of HSAs is that they encourage people to stay healthy". I really can't tell if he believes this or not; it seems to be based on either the erroneous assumption that people choose to get sick, and will do so less when it's their own money they're spending at the doctor; or the erroneous conflation of "getting sick" and "going to the doctor". See, you can pay for (some kinds of -- see next paragraph) preventative care from your HSA. But if you accept the premise that people are reluctant to spend their own money in the HSA on a doctor, why would you be more willing to spend your own money on preventative care?

The insurance rep can't even really tell me what I can spend the HSA money on -- that is, what is considered a "qualified expense". Here are two of my questions to the insurance rep, and his answers:
How do I know what is included as "qualified medical expenses"?
Who decides whether the money I'm spending from my HSA is for a "qualified medical expense?"
Unfortunately, we cannot provide a definitive list of "qualified medical expenses". A partial list is provided in IRS Pub 502 (available at www.irs.gov). There have been thousands of cases involving the many nuances of what constitutes "medical care" for purposes of section 213(d) of the Internal Revenue Code. A determination of whether an expense is for "medical care" is based on all the relevant facts and circumstances. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. The determination often hangs on the word "primarily."
You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions during an audit.

As I interpret this, they can't tell me what I can spend the HSA on, but will gladly audit me if I do it wrong. The list of qualifying expenses is fairly broad, much broader than the list of services covered by the traditional high-deductible plan that accompanies the HSA, but only the goods and services covered by the insurance plan are counted towards meeting your annual deductible or out-of-pocket maximum.

On the plus side, this newer type of HSA has a cool feature: the unspent balance rolls over from year to year, instead of disappearing. The old version was a bit like an interest-free Christmas Club savings account, with the caveat that any money left in the account on New Year's Eve goes to buy toys for your insurance agent. The new version is more like a Roth IRA (complete with a tax hit and 10% penalty if you withdraw it for non-medical expenses), except that it doesn't earn interest. They say you can invest it in stocks or bonds or mutual funds, but this doesn't work so well if you need it for actual medical expenses.

There's an old not-really-a-joke about insurance, that says the way to stay happy with your plan is to not get sick. HSPs are a lot like this, except you need to get a very specific dollar amount of sick per year....

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