07 January 2007

Smart Move 2006: Healthcare Reimbursement Account

This is the time of year when I spend an inordinate amount of time reviewing obsessing over what went right and what went wrong in the previous year. This is my own way of planning what actions to take to ensure more right things and fewer wrong things in the current year.

I think one of the smartest things that I did happened almost by accident. My employer, like many others, offers a number of medical insurance options. To boil them down to their simplest parts, each plan offers to cover a percentage of medical expenses, descending in value commensurate with the required payment assumed by the employee - 90% (the most expensive plan); 80%; 70%; and "risk-reward," which also covers 80%, but has higher deductibles, annual maximums, and co-pays. The previous year, I had the 70% coverage, which cost me $35.78 every two weeks. The cost for the same coverage for 2006 increased to $37.57, which I thought was pretty reasonable. It seems that I have heard nightmare stories from co-workers, who need to insure their whole families, about double-digit percentage increases in health care coverage.

After I signed up, when I read through the plan coverage, I found that I was eligible for a new benefit - the Healthcare Reimbursement Account (HRA). This new account was funded exclusively by my employer, to the tune of $60/month, and the money could be used by me in a manner similar to that of a medical Flexible Spending Account. In effect, I would be paying about $80/month out of my pocket in medical insurance, and getting $60 of that back to be used to any incurred medical expenses. Some common examples of what the money could be hospital services; physician, dental, vision and chiropractic services; eyeglasses, contact lenses and saline solution; co-pays and deductibles; prescription drugs (including co-pays); home health care; durable medical equipment; and drug and alcohol rehabilitation - almost everything except elective cosmetic surgery. Note: If I had additional dependents on my health plan, my monthly HRA reimbursement would be $120/month; the "risk/reward" plan comes with a $90 monthly HRA payment for singles, and $180/month for families. In addition, the money that remains unused each month earns interest while it sits in my account. The money rolls over from year to year (unlike a medical FSA) and becomes fully vested and portable after three years of participation in this plan, otherwise you would need to spend all of the money prior to terminating employment.

I am fortunate in that I don't spend too much time (translation: don't spend much money!) with doctors. One of the reasons why the 70% plan is a viable option for me is because I can assume some additional risk and hope that I can continue to live a relatively healthy life. I was choosing the 70% option anyway - so, this new benefit didn't really encourage me to assume this additional risk. It was literally, an added bonus, for me.

It is incredibly easy to use. I was sent a debit card last year and I use it just like I would use any other debit or credit card at my doctor's office or pharmacy, etc. I used it at the doctor's office flawlessly - my $20 co-pay was immediately credited, and deducted from my account. I also picked up a prescription and some over-the-counter medication at the drug store. For that transaction, I had to send in a copy of the receipt (so they could be sure that I didn't purchase Twinkies, I guess). I sent in a fax and received a letter in the mail a couple of days later approving the charge. Easy as pie.

Since I didn't bother to crunch any numbers before making my selection last year (I was just really re-upping with what I had), I need to sit down and do that this year to compare the relative value in downsizing my plan to the "risk/reward." It would save me about $8 per paycheck (nothing substantial), but also give me an additional $30/month in HRA money.

I don't think that my employer did a particularly good job of educating people about the availability of this additional benefit - and that it would be paid by them, into an account, for the empoyee. Clearly, this is designed to encourage the insured to assume more risk, as that would be less expensive for the insurance companies. You would think that employers would WANT their employees to sign-up for something that would save them money in health care costs in the long-term. I suspect that when it comes time for choosing plans this year, their will be a better effort to educate people on this plan.

Assuming I can keep up my relative health, my biggest question will be on what to spend the money? I am considering saving for LASIK surgery, but treating this like "found money" in the meantime.

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king said...

Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

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