High-deductible medical insurance better than none

An estimated 47 million Americans live without health insurance. Even among those fortunate enough to have coverage, many struggle to pay ever-rising monthly premiums, while still others worry about losing health benefits should they be laid off.

Clearly, it's wise to know all your health insurance options and to be prepared should your situation change.

Some people opt for a high-deductible health plan (HDHP) combined with a health savings account (HSA) to help lower monthly premiums while benefiting from available tax breaks. Although not right for everyone, these plans can save money if managed carefully; and, they may mean the difference between carrying at least basic catastrophic coverage and having no coverage at all.

Here's how they work:

The federal government defines HDHPs as plans with (in 2009) annual deductibles of at least $1,150 for individual coverage or $2,300 for family coverage, and maximum out-of-pocket expenses not to exceed $5,810 for individuals or $11,600 for families. HDHPs can either be purchased through your employer, if offered, or independently.

Although HDHP monthly premiums are often considerably less than for lower-deductible PPO or HMO plans, coverage details vary widely so compare plans carefully. For example, many HDHPs either don't include maternity coverage or charge extra for it; and preventive care, like annual physicals or vaccines, may or may not be subject to deductibles.

Among those most likely to benefit from HDHPs are:

• Younger, healthier people who probably won't reach the annual deductible amount.
• Chronically ill people whose expenses will probably exceed yearly maximum out-of-pocket limits.
• People earning more than the state's Medicaid qualifying limit but who can't otherwise afford to buy health insurance.
• Those who could afford to pay their typical medical expenses out of pocket but want the protection provided by catastrophic coverage should major expenses arise.

Many people combine an HDHP with an HSA in order to take advantage of federal tax breaks. HSA features include:

• Use your account to pay for current and future qualified medical expenses on a tax-free basis.
• Some employers' plans allow pretax payroll deductions. Otherwise, you deposit after-tax dollars in your HSA and take a credit on your federal income tax return – even if you don't itemize deductions.
• HSA contributions and their investment earnings grow tax-free.
• Unlike flexible spending accounts tied to traditional employer-sponsored medical plans that have "use it or lose it" provisions, HSA balances roll over from year to year and are completely portable if you change jobs or plans.
• 2009 maximum annual contributions are $3,000 for individual HDHP coverage and $5,950 for family plans. People age 55 and older can also make annual catch-up contributions of up to $1,000.
• Some HSAs let you pay for medical expenses as they occur using a debit card tied directly to your account balance.
• In addition to IRS-approved medical expenses, you can also use your HSA account balance to pay for: health insurance premiums if unemployed; medical expenses after retirement but before Medicare eligibility; out-of-pocket expenses when covered by Medicare; and long-term care expenses and insurance premiums.
• Many banks, credit unions, insurance companies and other financial institutions offer HSAs. For help finding one, consult your insurance broker or go to www.hsafinder.com. More information is also available at www.treas.gov/offices/public-affairs/hsa.

HDHPs and HSAs are not right for everyone, but if they're the only alternative you can afford, it's better than the risk of no coverage at all.