Thursday, December 30, 2010

HSA v. Medical Savings and Loan

Currently, a Health Savings Account with high deductible insurance (or government funded catastrophic insurance) is the only alternative to insurance.

Reports indicate the Indiana Insurance plan has an $8K yearly deductible.

Unfortunately, an HSA + high deductible insurance creates some ugly gaps.

Let's compare a person with a one time catastrophic incident costing $20K to a person with a chronic condition that costs $5K a year.

The person who has the one time catastrophe pays a one time $8K deductible and gets a $12K supplement.

The person with the chronic condition is under the deductible each year and will have to bear the full cost of the illness.

Since chronic conditions tend to reduce earning power, the person with the chronic condition is in a double crunch.

The Medical Savings and Loan is based on a full life cycle analysis. In the MS&L the person with the one time $20K event would end up paying what was in his savings account and get a loan to cover the rest of the $20K.

The Medical Savings and Loan supplements people with grants (not re-insurance).

Let's say a grant agency has $12 to dole out. The grant agency would notice that the person with the one time catastrophe had $22K in expenses (The one time event and some other doctor visits). The person with the chronic condition shelled out $5K a year for 8 years ... this person had $40K in expenses and diminished earning capacity and high future expenses.

So, in the Medical Savings and Loan, the guy with the chronic condition would get the grant.

BTW, I should also note that an HSA with high deductible insurance has one additional flaw: A person with high deductible insurance still must borrow to pay the gap between savings and the insurance. This borrowing is usually done with high interest loans.


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