Tuesday, January 22, 2008

Never mind the deductible -- watch the back-end cap

This came in on the comments on my last HSA post:

One question: were there any hidden surprises? It always seems there's some hang-up with health insurance...

Don't I know it.

My year of HSAing was remarkably smooth, though it's hard to say whether that's because everything worked well or simply because I had no unexpected medical situations. Unlike 2006, 2007 was a totally routine year for me and my spouse: nothing but the usual doctors calls, our standard prescriptions, and an annual checkup. There wasn't (thank goodness) much opportunity for me to test out the insurance and trip over hidden catches.

The only surprise was how unexpectedly easy it was to push through the one claim I had. One of my HSA's little carrots was that it reimbursed 60 percent of the cost of my out-of-network annual physical -- before setting the deductible. No, I'm pretty sure this isn't common. It wasn't even something the PPO insurance with the same carrier offered. It was pretty clearly a "come try this nice HSA!" bribe.

So when I had my physical, I paid out of pocket, downloaded the "reimburse me" form, sent it off with the receipt ...and a few weeks later, received a check in the mail for the $160 I'd put in the claim for. It was startling. I don't recall ever actually getting a claim processed without some kind of catch and extended wrangle.

Overall, though, I think the best thing to keep in mind with an HSA and avoiding surprises is: watch the back-end costs, not the front-end ones. As I wrote when I first opted into the HSA:

The articles I've found about HSAs tend to focus on the up-front deductible when emphasizing how HSAs can end up costing you more. To me, the far more important number is on the back end: the annual out-of-pocket max. What's the most I might be out, if very bad things happened?

An HSA is, pretty much by definition, a low-premium, high-deductible option. If you have a medical situation, you will almost always pay more upfront than someone with traditional insurance would: You might be liable for $1,000 or so in costs before the insurance kicks in anything at all. That's a serious issue to consider when opting for an HSA: can you come up with the money, if you need to? Are you better off paying higher monthly premiums to avoid the potential shock of a big hit all at once, if something dire happens?

Frustrating as a sudden hit for $1,000 or more would be, few people would be catastrophically devastated by that. What would be devastating is a high out-of-pocket max payment: At what point does your insurance foot the whole bill?

My HSA had an out-of-pocket max of around $4,000/year, about the same as the carrier's traditional insurance carried. If I got hit by a bus and rang up $250,000 in hospital bills, I'd still be capped at $4k. I could live with that.

But if my HSA's out-of-pocket max had been an order of magnitude more than the traditional insurance's? Say, $40,000? I would never have done it.

Insurance companies can always argue the fine print, and you never really know how effective your coverage is until you have the unhappy situation of having to test it out. But you can minimize the chances of devastation by paying as much attention to the potential back-end costs as you do to the front-end deductible.