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Understanding high-deductible health plans

Many consumers find themselves paying more of their own medical care costs as corporations ditch traditional health plans and move toward high-deductible health insurance plans coupled with tax-advantaged health savings accounts.

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Known as consumer-directed health care, these plans seek to drive down health care costs by placing more of the responsibility and cost burden on consumers.

If you have a greater financial stake in getting better and cheaper health care, the logic goes, you'll invest more energy into the process. And as more companies jump on the bandwagon, this will increase competition in the health care industry, further curbing costs.

"Consumer-directed health care doesn't refer to a single product, but to a portfolio of products and services that assist health insurance plan members in becoming informed health care consumers and taking responsibility for their health care decisions," says Thomas W. Rubino, director of public affairs for Horizon Blue Cross Blue Shield of New Jersey.

Since the premiums for high-deductible health care plans -- $1,000 or more per family member -- are much less than traditional health insurance plans, you're encouraged to invest the difference in your pretax contribution to a health savings account, which you can use for routine and out-of-pocket health care expenses.

But will it work?
While this sounds good in theory, the question remains: How well it will work in practice?

Many consumers are responsible for their own retirement, and the fact is many are woefully unprepared because they either can't or won't save enough. 

And, according to a survey conducted by the Commonwealth Fund and the Employee Benefit Research Institute in late 2005, people enrolled in consumer-directed health care plans are less satisfied than consumers enrolled in more comprehensive, traditional health care plans.

"These plans are promoted by policymakers and employers who believe that they will make employees more sensitive to health care costs, but the fact is that Americans are already paying much more in out-of-pocket costs for their health care than in other industrialized nations," says Sara Collins, assistant vice president of the Commonwealth Fund, a private nonpartisan foundation that supports research on health care.

"There has been very slow growth in wages in the U.S., and people are already struggling to pay for their retirement, their kids' college educations, and this is just another cost burden on an already overburdened consumer," she says.

The ABCs of consumer-directed health care
According to a study by the federal General Accountability Office, between 5 million and 6 million Americans were enrolled in such plans as of January 2006. While these consumers represent a fraction of Americans enrolled in private health insurance plans, this share is growing quickly.

Not only are many employers adopting this model, but many self-employed individuals are also going this route because there are so few other affordable health-insurance options available.

Many large health insurance companies offer consumer-directed health plans to employers and individuals. Many plans offer different levels of deductibles, typically starting at or just above the health savings account minimum of $1,050 and going up to $5,000.

A health savings account, or HSA, is a flexible spending account in which consumers and employers make tax-advantaged contributions that the consumer uses to pay out-of-pocket health care expenses.

Next: "The IRS has established rules for HSAs."
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