New trend and health insurance

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New trend and health insurance

New "consumer-directed" health plans promise to save money on premiums while preserving your choice of providers. Here are some of the options that may be available to you.
 
What is consumer-directed healthcare? "Consumer-directed," "consumer-driven" and "consumer choice" are often used interchangeably. Each term describes a type of health plan that uses financial incentives to help a person make a choice for a health-care program.
 
How do these plans work? Consumer-directed health plans typically combine a traditional health insurance policy with a savings account or fund that enrollees may use to reimburse themselves for qualified, out-of-pocket medical expenses. With the exception of some preventive care, the insurance component typically kicks in after the policyholder has satisfied an annual deductible and has met other cost-sharing requirements. Unlike traditional managed-care models, there are no restrictions on the doctors or hospitals that people may use.
 
What's the rationale? Proponents of this approach believe individuals who are involved in selecting and paying for their own medical care will seek out value by comparing prices, hunting for bargains and avoiding unnecessary services.
 
What types of plans are available? Consumer-directed health plans come in several varieties. Here are some examples:
 
Medical savings accounts (MSAs) These plans combine a high-deductible health plan with a tax-advantaged savings account. The high deductible plan protects individuals against the often-high cost of serious or frequent illness and prolonged hospitalization. The saving account may be used to pay for routine medical expenses. Any unused funds may be rolled over year-to-year and the individual retains control of the account.
 
Health reimbursement arrangements (HRAs) Unlike an MSA, any size business may offer an HRA to its employees. The employer -- not the employee -- funds the HRA and retains control of any unspent balances after the employee leaves the company. HRAs are typically paired with a high-deductible health plan. The insured member uses the money set aside in an HRA for qualified medical expenses not covered by the insurance policy.
 
Health savings accounts (HSAs) These tax-exempt accounts -- the newest type of consumer-directed health plan -- allow individuals to fund routine medical expenses or roll money over year-to-year to fund future medical needs. HSAs are owned and controlled by the account holder. To set up an HSA, an individual must enroll in a high-deductible health plan.
 
Flexible spending accounts (FSAs). These employer-established accounts allow employees to set aside pre-tax dollars to pay for certain medical expenses not covered by insurance, say eye glasses or dental care. There is no statutory limit on the amount individuals can contribute to an FSA, although employers often cap employee contributions at $2,000 or $3,000 a year. By law, employees must spend the money they set aside in a year; any unspent balances revert back to the employer.
 
SOURCES: MSAs Are Not FSAs Are Not HRAs, December 2002, The Council for Affordable Health Insurance, Alexandria, Va.; HSADecisions.org, Washington, D.C.; Flexible Spending Accounts: Making a Good Deal Better, Dec. 6, 2004, National Center for Policy Analysis, Dallas, Tex.
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